HAMZA RIAZ

01-155201-019
 THEORY REVIEW
 Adam smith promoted capitalism.To promote it he presented the invisible hand theory
wherein he said that administration ought not meddle in business industries and business
industries should create more items as they can.In mercantilism government said that items
are delivered uniquely as indicated by need or more creation will give misfortune or will be
squander however as indicated by the idea of invisible hand in capitalism Adam smith said
that business organizations can produces the item as they can and afterward invisible hand
come and purchase these items implies those individuals who needs these items or
somebody in country will get them or we can send out them so we will discover somebody
somewhere who needs to buy those items these are called invisible hands.
RUSSIAN FINANCIAL CRISIS(2014-15)
 Introduction:-The financial crisis in Russia in 2014–2015 was the consequence of
the sharp cheapening of the Russian ruble starting in the second half of 2014. A
decrease in confidence in the Russian economy made investors auction their
Russian resources, which prompted a decrease in the value of the Russian ruble
and started fears of a Russian financial crisis. The crisis has influenced the Russian
economy, both customers and organizations, and regional financial markets, as
well as Putin's ambitions with respect to the Eurasian Economic Union. The
Russian stock market specifically has encountered enormous declines, with a 30%
drop in the RTS Index from the beginning of December through 16 December
2014.
CAUSES OF CRISIS
The lack of trust in the Russian economy originated  two major sources.
 Fall in oil price:-The Russian economy relies largely upon crude oil exports.In February 2014  oil costs began to
slide down because of the boom in American shale oil production. For each $1 decrease in crude oil costs, the
Russian economy loses billions of dollars. The cost of oil tumbled from $100 per barrel in June 2014 to $60 per
barrel in December 2014.The drop in the oil costs was brought about by a drop in the interest for oil over the
world, as well as increase in oil production in the United States.This fall in oil costs hit Russia hard, as generally
50% of the Russian Federation's governmental revenue originates from the offer of oil and gas. In 2014,
Russia needed an oil price of $100 per barrel to have a balanced budget
 Economic sanctions:-The United States, the European Union and numerous different nations had imposed
economic sanctions on Russia following its military intercession in Ukraine in mid 2014.Economic sanctions
contributed to the decline of the ruble since some Russian oil companies have been kept from turning over
debt, driving them to trade their rubles for U.S. dollars or other foreign currencies on the open market to
meet their intrest payments commitments on their current debt.The effect of the Western sanctions on
Russian economy has been restricted by plan, since the sanctions just influenced a predetermined number of
people and companies. Russian counter-sanctions anyway reduced imports of food into Russia, which
prompted rising expansion and an increase in food costs. As result, the average salary decreased and the
number of individuals living under the poverty line increased. 
 IMPACT OF CRISIS
 Impact on Russia:-On 16 December 2014, the RTS Index, designated in U.S. dollars, declined
12% and the MICEX Index declined 8.1% at one point before closure the day higher. To
get rid of the Russian rubles which were declining in value, numerous Russians decided to bu
y durable goods, for example, washing machines, TVs, furniture, and jewellery, and to change
their pensions and savings from being in rubles to US dollars or euros.Several currency chang
ers offered money just at more exchanging rates: USD up to 99.8 RUB (official rate was 61.15)
and EUR up to 120–150 RUB (official rate was 76.15).Some foreign companies stopped their b
usiness exercises in Russia, including Volvo vehicle sales centres and the online stores of Appl
e and Steam, because of the high volatility and decrease of the Russian ruble. On the week of
15 December
, Russian gold and foreign currency reserves were decreased by "US$15.7 billion to beneath U
S$400 billion first time since August 2009 and down from (more than)$510 billion toward the
beginning of the year." Between 15 and
25 December
, yearly swelling had move to over 10%. Costs of goods, including meat and fish, rose 40 to 50
% inside a couple of months before the year's end because of Russia's restriction on Western i
mports
• Demographic Consequences:- calculations presented by a group of demographers from the Russian
Presidential Academy of National Economy and Public Administration demonstrate that the crisis may have
intense demographic consequence(simultaneous growth of mortality and decline of fertility).As of March
2015, formally, 3,000,000 Russians more than the previous year live with under ₽9,662 (US$169) monthly
income, totalling to twenty-three million.In 2016 more than 330,000 Russian residents applied for US the
permanent residency through the Green Card lottery program, a 24% expansion over the past year.
According to New World Wealth study, more than 2,000 millionaires emigrated from Russia.
• Impact on Global financial markets:-The financial crisis in Russia influenced other global financial markets.
U.S. financial markets declined, with the Dow Jones Industrial Average down about 3% in 3 business days, to
some extent because of the Russian financial crisis. The crisis drew comparison with the 1998 Russian
financial crisis that influenced global markets.Economist Olivier Blanchard of the IMF noticed that the
vulnerability brought about by Russia's economic crisis could prompt greater worldwide risk aversion in a
way like the Financial crisis of 2007–08.However, the 2014 international sanctions on Russia diminished
Russia's financial connection with the broader financial world, which thusly brought down the hazard that a
debilitated Russian economy would influence the worldwide economy. Since 1998, Russia and numerous
different nations have received a drifting drifting exchange rate, which could also help to prevent Russian
financial woes from affecting the rest of the world.Foreign exchange trading service FXCM said on 16
December 2014 it would limit U.S. dollar-ruble trading starting the next day, because of the volatility of the
ruble. They additionally said that most Western banks have stopped reporting the exchange rate of the U.S.
dollar for rubles (USD/RUB). Liquidity in the U.S. dollar-ruble market has also declined sharply.
THEORY LINK WITH CRISIS
 We can link the theory’s assumption and consequences with Russian financial crisis2014-15.
When these issues created no invisible hand come to solve that.No invisible hand came to
buy their crude oil nor a individual from their own country came to buy and because they
have strong believe on capitalism they faced this crises. Criticism of author on this theory was
proved right when this crisis occurred.