ECONOMIC CRISIS, CAUSES AND REFORMS

ECONOMIC CRISIS OF 2008 PRESENTED BY : ANKIT TRIVEDI AKSHAY SAWANT KRUNAL SHAH PARTH SAMPAT RAHUL PATIL .

ECONOMIC C R I S I S Economic Crises Comprises of … – Banking Crises – Economic Crises – Capital Market Bubbles – Currency Crises .

OR • Run on the Bank . Credit Crunch .ECONOMIC C R I S I S • Banking Crises – Bankruptcy • Inability to pay debts.

a drying up of liquidity and rising/falling prices due to inflation / deflation .ECONOMIC C R I S I S • Economic Crises – An economic crisis can take the form of a recession or a depression. – Economic Crisis will most likely experience a falling GDP.

– A dramatic decline of stock prices in a market. Crashes are driven by panic as much as by underlying economic factors .ECONOMIC C R I S I S • Capital Market Bubbles/Crashes – Market Price of stocks are higher than present value of future Cash flows.

undermining its ability to serve as a Medium of exchange or a Store of value.ECONOMIC C R I S I S • Currency Crisis –A currency crisis occurs when the value of a currency changes quickly. Exchange Rate PKE/US$ 90 85 80 75 70 65 60 55 50 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 26-Nov-08 .

George Soros an Analyst . Strategic Complementarities in Financial Markets – Successful investment requires each investor in financial market to guess what other investors will do – John Keynes compared Financial markets to a “Beauty Contest Game” – Mr.CAUSES OF ECONOMIC CRISIS 1. has called this need to guess the intentions of other “Reflexivity” .

CAUSES OF ECOMOMIC CRISIS 2. is frequently cited as a contributor to financial crises • Leverage magnifies the potential returns from investment. but also creates a risk of bankruptcy . Leverage • It means borrowing to finance investments.

CAUSES OF ECONOMIC CRISIS 3. – It is also seen as one of the reason bank runs occur. . a situation in which the risks associated with an institute‘s debt and assets is not appropriately aligned. bear Stearns failed in 2007-08 because it was unable to renew the short term debt it used to finance Long term investment . Such as. Asset – Liabilities mismatch – This is another factor believed to contribute to financial crises.

as when currency crises. as when a bank run spreads from a few banks to many others. or from 1 country to another.CAUSES OF ECONOMIC CRISIS 4. Contagion – Financial crises may spread from one institution to another. sovereign defaults. or stock market crashes spread across countries .

THANK YOU .

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