FINANCIAL CRISIS IMPACT OF AN ECONOMY

Financial Crisis:
The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value.

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

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.

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 a currency crisis or balance of payments crisis. Example: European Exchange Rate Mechanism suffered crisis in 1992-93 and were forced to devalue. In Asia

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.

Recession VS Depression
When your neighbor lost jobRecession When you last job Depression

Great Depression in US 1929 Failure of Govt efforts to regulate Interest rates. Bank Failures Stock Market Crashes
United States Industrial production Wholesale prices Foreign trade Unemployment 46% 32% 70% 607% Great Britain 23% 33% 60% 129% France 24% 34% 54% 214% Germany 41% 29% 61% 232%

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 and rest of the world Availability of Resources

Gross Domestic Product

Consumers/Coustomers/Govt
3M's(Men, Money,Ma terial)
Productio n

GDP

Employment

Productio n

Income(S alaries)

Sales to the Company( depending company)

Spending

Gross Domestic Product

Production Employment

Investors

Income(Savings)

Spending

Sales to the Company(depending company)

Profits

Share Price will Increase(EPS)

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

Current Account of INDIA

Capital account of INDIA

FIIS Investment in Last 10years

Stock Changes in the year 2008

Never spend your money before you have earned it.

Thomas Jefferson

High Growth in short span of time Leads to Unexpected and Unavoidable Damage for Long time

Any questions