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FINANCIAL CRISIS IMPACT OF
AN ECONOMY
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Financial
Crisis:
The term financial crisis is applied
broadly to a variety of situations inwhich some financial institutions or
assets suddenly lose a large part of
their value.
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Types of Crisis:
1.Banking Crisis:
A situation in which bank runs are
widespread is called a systematic
banking crisis or just a banking panic.
when a bank suffers a sudden rush
of withdrawals by depositors, this
called a bank run.Sweden Banking Crisis 1991
Reason: speculative real estate and consumer
debt
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2.Speculative Bubbles and Crashes:
A financial asset (for example
stock) exhibits a bubble when its price
exceeds the present value of the
future income (such as interest or
dividends).
Example:
United States Housing
Bubble /Subprime Mortgage Crisis
2008.
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3.International Financial crises:
When a country that maintains a
fixed exchange rate is suddenly forced
to devalue its currency because of a
speculative attack, this called acurrency crisis or balance of payments
crisis.
Example:European Exchange Rate
Mechanism suffered crisis in 1992-93
and were forced to devalue. In Asia
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4.Wider Economic Crisis:
Negative GDP growth lasting two or
more quarters is called a recession.
An especially prolonged recession
may be called a depression.
While long period of slow but not
necessarily negative growth is called
economic stagnation.
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Recession VS Depression
When your neighbor lost job-Recession
When you last jobDepression
Great Depression in US 1929
Failure of Govt efforts to regulate Interest rates.
Bank Failures
Stock Market Crashes
United States Great Britain France Germany
Industrial production 46% 23% 24% 41%
Wholesale prices 32% 33% 34% 29%
Foreign trade 70% 60% 54% 61%
Unemployment 607% 129% 214% 232%
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How to Measure the
Economic/Financial stability of a
Country GDP
Balance of Payments
Currency Appreciation Inflation(Under control)
Returns in Financial Markets
Political stability in Home country andrest of the world
Availability of Resources
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Gross Domestic
ProductProductio
n
Employment
Income(S
alaries)
Spending
Sales tothe
Company(dependingcompany)
Productio
n
GDP
3M's(Men,Money,Material)
Con
sumers/Coustomers/Govt
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Gross Domestic
Product
Investors
Share Price will Increase(EPS)
Profits
Sales to the Company(depending company)
Spending
Income(Savings)
Employment
Production
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IMPACT OF A COUNTRY
Currency Depreciation
Balance of payments(Deficits)
Current Account
Capital Account
Downfall of Production in Sectors
Downfall of Profitability in Financial Markets
Rise in Deflation
Rise in unemployment Hike in interest rates
Decline of Countrys Growth rate(GDP)/Overall
Economy Downfall
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Current Account of INDIA
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Capital account of INDIA
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FIIS Investment in Last
10years
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Stock Changes in the year
2008
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High Growth in short span of
time Leads to Unexpected andUnavoidable Damage for Longtime
Never spend your money before
you have earned it. Thomas Jefferson
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Any questions