Cycles of economic boom and bust are regular features of market economies. The global recession that set in during 2008 is the most recent episode of this phenomenon and is likely to be repeated in the future as well. Although the scale and magnitude of these crises have somewhat reduced in the period after the Second World War, they have been big enough to be termed critical policy failures of governments across the world…
Since many of the leading economies in the world are in North America and Europe, these regions are the worst hit. East Asian economic giant Japan seems not to have been impacted. Emerging economic superpowers in the form of China and India have shown stable credit markets too. (Barrell & Hurst, 2008) As the U.S. financial markets are most closely linked to that of Europe in general and the UK in particular, the effect of the credit crisis is most acute on the latter. If the total losses induced by the current economic recession crosses $1000, then this will constitute a 7.4 percent contraction in US GDP. But other countries such as the UK will also be affected by this contraction since their banking institutions have invested in US mortgages. This means that other countries such as the UK are adversely affected as well. In the UK, although the losses have not measured accurately so far, it is a fair estimate that losses of 2-3 per cent of GDP have been incurred.
But even before the credit derivatives crisis took hold, the IMF gave out warnings through its World Economic Outlook reports. The report also made obvious that any crisis in the U.S. financial markets would have a cascade effect on the UK and beyond. For example, in the report released in 2008, months before the outbreak of the credit crisis, it stated that
"It is possible that falling house prices could induce US consumers to default on prime loans issued to good creditors with significant housing equity. It is also possible that default rates on credit cards and car loans could rise, but perhaps this is less likely as the short-term costs are perhaps higher. In addition it is possible that borrowers with negative equity in the UK and elsewhere might choose to default on their loans when house prices are falling and, if they did, banking sector losses could mount." (Barrell & Liadze, 2009)
Just as the recession was taking hold in the US, analysts predicted that there would be spill over effects on the rest of the world, including the UK. And so far, those predictions have proven to be true. The crisis triggered by the failure of credit derivatives in the US would affect other countries depending on which areas the losses affected and their impact on the banking system. At a time when the effects of global recession was on an ascendency, scholars Ray Barrell and Ian Hurst, noted that "if we spread the losses evenly then growth in the UK would also slow, this year and next, and we might see growth as low as 1.4 per cent this year and marginally lower than 1 per cent next year. On the same basis Euro Area growth might slow to around 1.2 per cent in each year. These falls could be compounded if there were domestic problems in these countries as well as in the US". (Barrell & Hurst, 2008) And economic data for 2009 and 2010 has vindicated their predictions, further underlying the fact that the UK economy is highly dependent on the fortunes and fluctuations of the American economy.
During the first phase of the recession, it is natural to see an increase in bank borrowing, as business corporations seek to utilize ...
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(“UK and American Financial Markets Essay Example | Topics and Well Written Essays - 1000 words”, n.d.)
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(UK and American Financial Markets Essay Example | Topics and Well Written Essays - 1000 Words)
“UK and American Financial Markets Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.net/politics/287718-uk-and-american-financial-markets.
ing and overseeing economic organisations and markets, which encompasses the central bank's function in this area. A centred topic in the argument the span to which economic guideline in the connection between various undertakings should be incorporated and if blame for economic guideline and supervision should be vested in one institution; One of the most fundamental alterations in institutional structure was the conclusion in the UK in 1997.
In seeking an answer to this question, this paper borrows heavily from the elements of the portfolio theory and the asset pricing. Matousek (2012) observes that the portfolio theory is a theory of finance that aims at maximizing the expected return of a particular portfolio risk, or effectively minimizing the risks associated with a particular portfolio.
Both developed and developing countries have faced the severity of the consequences of this crisis. While the crisis had taken shape, economists, politicians and researchers were concerned about the causes that triggered a crisis of such a dimension. Although it was quite late and the crisis was already in full swing, researchers claim that prior signs were visible about the occurrence of the crisis.
The markets are however characteristically distinct by taking the clear pricing, the basic rules and guidelines for trading, expenses and fees and the market powers that determine the amounts of securities that are able to trade. However, some financial marketplaces are only giving authority to participants that meet positive standards, which in this case can be found on the issues like the quantity of money that is held, the depositor's physical location, the information of the marketplaces or the occupation of the member.
However, the yield curve can have a predictive power and strength for both real activity and inflation. The strong relationship between macro economy and the yield curve has been the conventional theme of a growing empirical theory (Stander, 2005). Various theories have been generated to show that the relationship is bi-directional; Nelson Siegel model.
At the same time, the adoption of restrictive anti-inflationary policies in the United States caused a substantial rise in the level of real interest rates, which made the servicing of foreign debt more difficult. In this context, starting in 1981, the major debtor nations began to delay capital amortization payments, which in turn caused a progressive suspension of the granting of new loans on the part of the international banking community, including refinancing.
On principle, common sense and previous experiences (let's remember the October 19th of 1987 crisis, when the Dow Jones suffered its worst fallen in peaceful times, going down in a 22% and tainting the European and Japanese Stock markets; or when the disaster came in 1988 due to the storm in the Asian financial markets originated an unexpected non payment over the Russian debt1) pointed at South American Countries as ones of the most probable to be infected by the recent financial market turmoil.
ression representative economists of these two nations, Harry Dexter White and John Maynard Keynes, respectively led the gathering of economists at the Mount Washington Hotel in Bretton Woods, New Hampshire to formulate a system that will prevent the recurrence of this traumatic
US economy, forced banks to incur billions in losses, and latter spread to the UK causing near bankruptcy of Northern Rock in Newcastle that was finally nationalised in February 2008. In this paper, the effect on sub prime loans will be discussed and a closer look on its effects