Article Analysis: 'International Financial Contagion in Currency'

Financial Crisis of 2007-2008 originated in the United States spread to the financial systems of many other countries, including CIS countries, by means of the domino effect. Bankruptcy of one of the largest Americans Bank, Lehman Brothers Holdings PLC, in someway was a launcher of this global crisis the scope of that can be compared with the Great Depression of the 30s of the last century. No one could have even believed that a crisis in the local market of subprime mortgage loans in the USA would have such enormous affect on the financial systems over the world and crash banking sectors of many countries one by one.

In 2008, a number of Banks, Financial Institutions and Non-Financial institutions failures sparked Financial Crisis or as some economist call “The Great Recession” that efficiently froze the entire world Financial institutions,

The financial crisis of 2007–2008, also known as the Global Financial Crisis and 2008 financial crisis, is considered by some economists such as Nouriel Roubini, professor of economics and international business at New York University, Kenneth Rogoff, professor of economics and public policy at Harvard University, and Nariman Behravesh, chief economist and executive vice president for IHS Global Insight, to have been the worst financial crisis since the Great Depression of the 1930s. All of them agreed that this is a “one in fifty years event”, however the latest Great Recession is not a typical cyclical recession of the World Economy and no doubt will last for more that usual two years (Business Wire, Reuters). The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of U.S. dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis. (M. N. Baily, D. J. Elliott, 2009). So what are the cаuses of this crisis? Mаny factors dirеctly and indirectly caused the Great Recession, with expеrts plаcing different weights upon pаrticular causes. Major cаuses of the initial sub-prime mortgage crisis and following recession include: Internаtional trade imbalances and tax lending stаndards contributing to high levels of dеveloped

The early 1990s exhibited a boom in many economies throughout the world due to factors such as globalization and other trade liberalization practices, but this boom was quickly halted in the latter half of the decade when bad investments nearly sent the entire world into economic turmoil. With the introduction of free trade practices such as the North American Free Trade Agreement, or NAFTA, the economies of many of the worlds “developing countries” skyrocketed due to an influx of foreign investment. At, first this exponential boom in small countries with emerging economies seemed like it would never end. However, this all changed when investors “caught wind” that these developing countries did not have the means to keep up with the massive inflow of investments. This led to what we know refer to today as the Asian Financial Credit Crisis. In order to understand how to prevent such a disaster from happening again, we must first examine how exactly this event was triggered, and what should have been done differently.

This epidemic is the spread of market downside from country to country and is a spill-over effect that is influenced by the agents’ four behaviors which are governments, financial institutions, investors, and borrowers. Financial contagion happens to both advanced economies and developing countries and causes financial volatility. It affects countries capital flows, exchange rates, and stock prices. The contagion contains problems such as irrational phenomena, macroeconomic shocks that cause local shocks passed through competitive devaluations, trade links, and financial

And yet again, the current crisis too effected almost every part of the world because the world is made up of interconnected globalized independent economies.

Financial crisis is defined as the financial meltdown, or in other terms as the credit crunch. A financial crisis is an economic incidence makes it hard to obtain and access the capital for use in investment. The economic crisis is an ongoing economic problem that was more pronounced in 2008 resulting in the liquidity in the global credit markets and its financial systems (Berlatsky 77). This means that there was no credit available for the investors, which adversely affects the poor countries. For the developed countries, this crisis created panic and was perceived as the most horrible in the previous years.

Around the world the effects of the crisis due to globalization are evident and the implications of globalization can be seen with much more clarity as many major financial institutions abroad also invested in mortgage securities and collateralized debt obligations. This like in the us lead to bank failures and bailouts in order to stabilize the markets that had been badly damaged by the financial crisis. Despite the efforts to stabilize the markets the damage to the economies of the world had been done and efforts of governments and central banks to stimulate their economies were

The most recent financial crisis of 2007 was felt throughout the world, and brought about huge economic consequences that are still being felt to this day. Within the United States, the crisis undoubtedly resulted in a surge in poverty and unemployment, a significant drop in consumption, and the loss of trust in the capitalist economic system. Because of globalization, this crisis was felt through the intertwined global markets, affecting underdeveloped countries even more. Historical events from the past have taught us that financial crises such as the one we suffered during 2007 have occurred a vast number of times. From Mexico to Thailand, these financial crises have resulted in contagion worldwide, and have caused governments to

The origins of the financial crisis can be attributed to multiple inter-related factors. The biggest single contributor of the crisis, however, was the practice of

In an economy which is globalized to such an extent it is difficult to know all the linkings, and the connections between events and institutions are often impossible to predict. Many countries in Eastern Europe, for instance, are still heavily reliant on Greek banks, and if those banks collapse the EU faces the risk of a chain reaction of financial turmoil that could easily spread to the rest of the global economy (TIME, June 29, 2015).

Among the examples we find the shock known as Black Monday from 1987; the so called lost decade of Japan 1990; Black Wednesday from 1992; the Mexican peso crisis (also known as Tequila effect) from 1994; Asian Crisis (or Asian Flu) that began in 1997; the Russian Crisis (also called Russian Cold) from 1998; the Brazilian Crisis (otherwise Brazilian Sneeze) from 1999; Dotcom Crisis (alias Nasdaq Rach) from 2000; Argentinean crisis from 2001, and of course, the present crisis, which began in 2007, also known as the Suprime Mortgage Crisis, Banking Crisis, Sovereign Debt crisis or just the Global Financial Crisis. (Kindleberger and Aliber, 2005) from the dawn of the civilization until 1997, identified a total of 39 local and global economic crises, all crossing the borders of a single country. Similarly (Reinhart and Rogoff, 2009) between 1800 and 2008 identify in 138 countries a total number of 783 banking crises. Over the past century the number of crises rose with 300%, and this number is only referring to banking crises.

Just after ten years of Asian financial crisis, another major financial crisis now concern for all developed and some developing countries is “Global Financial Crisis 2008.” It is beginning with the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and spread like a flood. At first U.S banking sector fall in a great liquidity crisis and simultaneously around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. (Global issue)

In 2008 the economy faced the most dangerous crisis especially the western nations. This contagion began in 2007 in the United States when sky-high home prices turned decisively downwards. The spread was also quick to the entire United States financial market and financial sectors overseas. All the financial institutions were affected which included the entire investment

Affected by the Southeast Asian financial crisis, Russia suffered from the financial crisis in May 1998 followed the crisis in October 1997. The crisis initially reflected on currency market and security market. As a result, foreign capital about one-third of the total amount of Russian national debts faced large-scale capital flight; exchange rate depreciated and stock market suffered a large setback; re-lending interest rate once reached up to 150%. Stock market, bond market and currency market basically fell into halts, and banks were incapable to handle residents’ withdrawals. (Desai, 2000) In brief, the operation of the whole financial system and economy was almost