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Market Failure - Essay Example
The year 2008 was marked by volatility in the world stock market due to subprime mortgage crisis. Market fluctuations in the US markets exerted a profound influence on world markets. There were times when no satisfactory explanation could be found for the fluctuation in prices…
The present subprime mortgage crisis that hit the credit markets and banking systems is due to the increase in loan defaulters, thus making the banks to bankrupt. Industrial Development Finance Institutions (IDFIs) are expected to stimulate industrial investment in both private and public sectors in developed and developing countries. It is their role not only to inject capital, but also to blend capital with entrepreneurial skills to support industrial advancement in an underdeveloped economy. A great variety of IDFIs has been established in the developed and developing countries since 1945, many following independence in the late 1950s and 1960s of former British and French colonies, to provide both medium- and long term loans to industrial and agricultural projects. There is hardly any developing country where there is not at least one development bank. Regardless of their variations in the set and functional roles, a large number of development banks in Asia, Africa and Latin America are now jaundiced by persistent debt defaults. In fact, there are few IDFIs in developing countries like India and China, which have not been adversely affected by persistent debt defaults.
It has been found that debt default occurs due to borrower's inability or unwillingness to repay debt. ...