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Interest rate convergence / Covered or uncovered interest rate parity - Dissertation Example

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Interest rate convergence / Covered or uncovered interest rate parity

made significant losses on acquisitions of foreign institutions and on holding of asset-based securities (OECD, 2009, p.30). By mid 2007, the financial disorder with its rigorous liquidity and credit crunch seemed to detain to financial markets and institutions in the U.S., U.K., Western Europe, Asia and many other countries. It resulted in the failure of key businesses, downturn in the economic activity and decline in the consumer wealth. During this period economies globally slowed, as international trade declined and credit tightened. This paper will focus on the effect of financial crisis on U.K. and other developed nations like USA, Europe and Asia and will also compare the impact of crisis on U.K. with these nations. Table of Contents Abstract 2 Table of Contents 2 Introduction 4 Chapter 1 6 Impact of the Financial Crisis 6 United Kingdom 6 United States of America 7 Europe 8 Asia 9 Comparison 10 Chapter 2 10 Steps towards Recovery 10 United Kingdom 10 United States of America 11 Europe 12 Asia 13 Chapter 3 14 Interest Rate Convergence 14 Conclusion 15 Reference 16 Bibliography 19 Appendices 20 Reflective Essay 24 Question 25 Introduction The economy of United Kingdom and average household incomes, after 1992, has experienced a period of continuous growth. But in 2008, like many OECD economies, U.K. has also experienced a rigorous recession as a result of a sequence of global shocks which has resulted in the fall of gross domestic product (GDP) growth by -2.4% (See Appendix A). The financial crisis has rigorously weakened the supply of credit and house prices have also fallen to a great extent. It also resulted to an increase of unemployment. The increase in the government deficit has provided support to but led to an increase of debt to GDP ratio (See Appendix B) (OECD, 2009, p.21). The financial crisis has initially started in the USA and resulted in the bursting of housing bubble and the following of subprime mortgage crisis in the USA. Investment houses, banks and customers suffered huge amount of leveraged debt. In world markets, investors deployed hot money seeing higher rate of return. It has also affected the stock market of the USA (Nanto, 2009, p.32). In the plunge of 2008, Eastern Europe (EU) was also considered as the one of the most inflamed region in the world economy. It has also resulted in the large decline in output in 2009. The country that was affected most by the crisis in Eastern Europe was Latvia. The three main crisis countries i.e. Latvia, Romania and Hungary together resulted for only 2% of EU GDP. The major impact of the financial crisis was on the European banking system. Before the start of this crisis only, the financial alarm had been ringing since 2006 due to the huge current account deficit in many of these countries (Aslund, 2010, p.1). Asia is also affected by the financial crisis and resulted in a considerable drop in growth due to the sharp reduction in exports. In spite of the actions taken in response to the lessons drawn from recurring crises which have took place in 1997-98, more or less all Asian developing emerging economies now evident to increased propensity to financial boom–bust cycles and turn in property, equity and currency markets due to their closer integration with major financial centers (Akyuz, 2010, pp.1-2). Financial Services Authority ...Show more

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Dissertation, Finance and Accounting Abstract The enduring global financial crisis has led to a sharp reduction of international trade, involving a short term decrease in global agriculture trade value around 20%. The crisis is leading to a rearrangement of exchange rates, and the definitive declaration of the crisis depends on the alteration in the exchange value of the U.S…
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