GLOBAL FINANACIAL CRISIS & RESULTANT                       SLOW-DOWN IN INDIA                                             ...
Recession What is Recession?   In economics, the term recession generally describes the reduction  of a countrys Gross Do...
What is GDP?  Gross Domestic Product        Definition : The monetary value of all the finished goods and       services ...
India’s GDP                                      In 2008-Q3 India’s GDP slump down to 5.3%Simple tips for employees during...
Recession and Depression      There is a joke that economists quote to explain the         Difference between “Recession &...
What does Sub prime meltdown mean? A financial crisis that arose in the mortgage  market after a sharp increase in mortga...
Sub prime loano A sub prime loan is a loan given to borrowers that are  considered more risky, or less likely to be able t...
How loan is given?o When one go to get a loan one need to get a credit  check, and what results from this credit check is ...
o After the fed lowered interest rates to historical lows  however there was so much money (also referred to  as liquidity...
o After the fed lowered interest rates to historical lows  however there was so much money (also referred to  as liquidity...
o Relatively few of these sub prime borrowers were  defaulting on their loans, the financial institutions  which held thes...
o 1. When interest rates are low in general it causes  the economy to expand because businesses and  individuals can borro...
Sub prime mortgage crisis The subprime mortgage crisis is an ongoing  financial crisis triggered by a dramatic rise in  m...
o Approximately 80% of U.S. mortgages issued in recent  years to subprime borrowers were  adjustable-rate mortgages. When ...
The Sub prime Crisis Implications for India   There are direct and indirect implications not only for the   United States ...
•The sub prime that was brought upon by the      American financial system upon itself is spreading      its tentacles aro...
•Secondly, the near recession situation in the USA      has led to a loss of demand for Indian exports      hence loss of ...
Thirdly, investment banks and other financial      institutions are on a job slashing spree to cut      costs. This means ...
This policy will exclude a majority of the      population from institutional sources of credit,      thereby affecting gr...
Fifthly, there is a risk of the financial contagion      spreading to the entire world. Firms like Bear      Sterns, Lehma...
What is Financial Crisis ?– The term financial crisis is applied  broadly to a variety of situation in  which some financi...
Why Financial Crisis Occurs ?“ In the past financial crisis have been  generated by combination of factor such asovershoot...
Causes of Recessions1. Currency crises  Frequent change in international currency rate.2. Energy crisis  Usually refers ...
Airline & Hotel Industries started                              “Cost Reduction” activities                               ...
So, you can see how the hit on Airline and Hotelindustries can affect “Un-related” industriesin the end;One industry can h...
Effects of Recessions1. Credit crunches Banks may suddenly stop or slow lending activity.2. Bankruptcies Bankruptcy typi...
Current Markets conditiono We all know that markets have slumped.o We read about job-loses in news papers.o People talk ab...
How to come out of Recession?It is unhealthy for any nation to be in Recession;So, Government will take certain countermea...
Government Plans against the Recession?Hence, Government does not have direct control on  Producers’ & the Consumers’ beha...
Govt control through RBIRepo Rate: Repo rate is the rate at which the banks can borrow  money from a central bank of the c...
Govt_Fiscal PoliciesSee the flow :                   Fiscal                          Government influences the economy by ...
Govt_Monetary PoliciesSee the flow :                Monetary                            Government manipulates the availab...
What about India in global market crises    Most of the developing                           Currently,        GDP Growth ...
Employee - What do I do during recession?TGC Prasad, Bangalore
Wise Employer-Recession as Challengeo Rather than earning the profit some wise employer treat this recession  as a challen...
Don’t worryWhat goes down will always go up, Markets will rebound – these tips will prepare you to be a winner !! HOPING T...
Simple tips for employees during recession times
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Global finanacial crisis (mehul)

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Global finanacial crisis (mehul)

  1. 1. GLOBAL FINANACIAL CRISIS & RESULTANT SLOW-DOWN IN INDIA Prepared by : Mehul barotSimple tips for employees during recession times
  2. 2. Recession What is Recession? In economics, the term recession generally describes the reduction of a countrys Gross Domestic Product (GDP) for at least two quarters.Simple tips for employees during recession times
  3. 3. What is GDP?  Gross Domestic Product Definition : The monetary value of all the finished goods and services produced within a countrys borders in a specific time period, GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. GDP = C + G + I + NX1. "C" is equal to all private consumption, or consumer spending, in a nations economy.2. "G" is the sum of government spending.3. "I" is the sum of all the countrys businesses spending on capital.4. "NX" is the nations total net exports, calculated as total exports minus total imports. (NX = Exports - Imports)Simple tips for employees during recession times
  4. 4. India’s GDP In 2008-Q3 India’s GDP slump down to 5.3%Simple tips for employees during recession times
  5. 5. Recession and Depression There is a joke that economists quote to explain the Difference between “Recession & Depression” RECESSION = WHEN YOUR NEIGHBOR LOSES HIS JOB DEPRESSION = WHEN YOU LOSE YOUR JOBSimple tips for employees during recession times
  6. 6. What does Sub prime meltdown mean? A financial crisis that arose in the mortgage market after a sharp increase in mortgage foreclosures, mainly sub prime, collapsed numerous mortgage lenders and hedge funds. The meltdown spilled over into the global credit market as risk premiums increased rapidly and capital liquidity was reduced. The sharp increase in foreclosures and the problems in the sub prime mortgage market were largely blamed on loose lending practices, low interest rates, a housing bubble and excessive risk taking by lenders and investors. It is also known as the "sub prime collapse" or "sub prime crisis".Simple tips for employees during recession times
  7. 7. Sub prime loano A sub prime loan is a loan given to borrowers that are considered more risky, or less likely to be able to make their loan payments, in relation to high quality borrowers because of problems with their credit history.Simple tips for employees during recession times
  8. 8. How loan is given?o When one go to get a loan one need to get a credit check, and what results from this credit check is something that is known as FICO score. A FICO score is a number which represents how credit worthy one is considered which is based on factors such as the amount of money that one earn, the record of paying back past debts, and how much debt one is currently holding. The higher the score the better one’s credit is considered, and is the more likely to get a loan.o Buyers with a FICO score below 620 (generally considered sub-prime) where in most cases considered too risky to lend to and therefore could not get a loan.Simple tips for employees during recession times
  9. 9. o After the fed lowered interest rates to historical lows however there was so much money (also referred to as liquidity) available that financial institutions started offering loans to buyers with FICO score’s below 620. Because these borrowers were considered less likely to be able to pay the loan back than borrowers with higher credit scores, these sub prime borrowers were charged a higher interest rate.o initially went very well for the financial institutions that made these loans because in the years that followed interest rates stayed low, the economy continued to grow, and the real estate market continued to expandSimple tips for employees during recession times
  10. 10. o After the fed lowered interest rates to historical lows however there was so much money (also referred to as liquidity) available that financial institutions started offering loans to buyers with FICO score’s below 620. Because these borrowers were considered less likely to be able to pay the loan back than borrowers with higher credit scores, these sub prime borrowers were charged a higher interest rate.o initially went very well for the financial institutions that made these loans because in the years that followed interest rates stayed low, the economy continued to grow, and the real estate market continued to expandSimple tips for employees during recession times
  11. 11. o Relatively few of these sub prime borrowers were defaulting on their loans, the financial institutions which held these loans were enjoying the additional profits earned by charging these borrowers a higher interest rate, without many problems.o After the initial success and profitability for those offering sub prime mortgages the practice expanded dramatically and the terms which borrowers were given in order to allow them to obtain loans became all the more creative.Simple tips for employees during recession times
  12. 12. o 1. When interest rates are low in general it causes the economy to expand because businesses and individuals can borrow money easily which causes them to spend more freely and thus increases the growth of the economy. 2. What drives interest rates lower is the fact that there is an increase in the supply of money, meaning that there is more money to go around.oSimple tips for employees during recession times
  13. 13. Sub prime mortgage crisis The subprime mortgage crisis is an ongoing financial crisis triggered by a dramatic rise in mortgage foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe. The crisis, which has its roots in the closing years of the 20th century, became apparent in 2007 and has exposed pervasive weaknesses in financial industry regulation and the global financial system.Simple tips for employees during recession times
  14. 14. o Approximately 80% of U.S. mortgages issued in recent years to subprime borrowers were adjustable-rate mortgages. When U.S. house prices began to decline in 2006-07, refinancing became more difficult and as adjustable-rate mortgages began to reset at higher rates, mortgage delinquencies soared. The result has been a large decline in the capital of many banksSimple tips for employees during recession times
  15. 15. The Sub prime Crisis Implications for India There are direct and indirect implications not only for the United States but for the entire world. Let us briefly the effects of this crisis on the Indian economy. Firstly, the sub prime crisis has led to near loss of confidence in the American Stock Markets. Many big investment banks have been brought down to their knees and many others are finding it extremely difficult to stay on their feet. In order to consolidate their respective balance sheets in the United States, these banks are unwinding positions in developing markets hence causing down swing in these markets. A simple case in point was the intra day 1400 points fall on the BSE in January 2008 that was brought about by Citi Bank unwinding its position in many front line stocks in India.Simple tips for employees during recession times
  16. 16. •The sub prime that was brought upon by the American financial system upon itself is spreading its tentacles around the world. People who were not even remotely connected with the sub prime crisis are being adversely affected.Simple tips for employees during recession times
  17. 17. •Secondly, the near recession situation in the USA has led to a loss of demand for Indian exports hence loss of export earnings for India.However, on account of the sub prime crisis, all their sources of credit have dried up, and they are being forced to cut down on their expenditures. Thus demand for imports is falling, which implies loss of revenues for countries like India. Not only is there a loss in the goods sector, but the IT sector is also feeling the pinch. Software development for many US firms takes place in India but as the American firms are facing an economic slowdown, they are demanding less IT products, leading to a fall in the growth rate of the Indian IT sector.Simple tips for employees during recession times
  18. 18. Thirdly, investment banks and other financial institutions are on a job slashing spree to cut costs. This means that many jobs in India are at stake because these institutions have their BPO’s in India. So the first jobs to go will be the low end Indian BPO jobs leading to increased unemployment in India. Fourthly, there will be serious implications for the banking sector as well. The sub prime has meant that the Indian banks have to follow stricter norms while disbursing loans to the people. The argument is this, people will be asked to provide collateral for the loans given to them. Anybody who is unable to furnish the collateral will be denied a loan.Simple tips for employees during recession times
  19. 19. This policy will exclude a majority of the population from institutional sources of credit, thereby affecting growth negatively.Simple tips for employees during recession times
  20. 20. Fifthly, there is a risk of the financial contagion spreading to the entire world. Firms like Bear Sterns, Lehman Brothers, Meryl Lynch who once inspired confidence amongst the investor class have now gone bust. Other giants like Citi Bank, Morgan Stanley, and AIG have been shaken from their very foundations. If one more big financial institution fails there will be a collapse of the entire financial system of the USA.Simple tips for employees during recession times
  21. 21. What is Financial Crisis ?– The term financial crisis is applied broadly to a variety of situation in which some financial institution or assets suddenly lose a large part or their value.Simple tips for employees during recession times
  22. 22. Why Financial Crisis Occurs ?“ In the past financial crisis have been generated by combination of factor such asovershooting of marketExcessive leveraging of debt and credit booms,Miscalculation of risk,Rapid outflow of capital from of a countrySimple tips for employees during recession times
  23. 23. Causes of Recessions1. Currency crises  Frequent change in international currency rate.2. Energy crisis  Usually refers to the shortage of oil and additionally to electricity or other natural resources of energy.3. War  Ruins the country property.Refers and relate to economy.4. Under consumption  Insufficient consumer demand relative to the amount produced5. Overproduction  Excess of production over consumption.6. Financial crisis  Some financial institutions or assets suddenly lose a large part of their value.
  24. 24. Airline & Hotel Industries started “Cost Reduction” activities iii] Salary reduction toi] Reduce No. of flights ii] Lay off people “Not laid off people” Low or No income to They became careful dueIn flight meals reduced spend and buy goods to the fear of loss of jobMeals supplying company Demand for other goods Started saving moneygot the hit come down instead of spendingCatering company now, Demand for other goodslays off people come down
  25. 25. So, you can see how the hit on Airline and Hotelindustries can affect “Un-related” industriesin the end;One industry can hit many other industries when theconfidence level of millions of consumers & producersdrastically comes down;
  26. 26. Effects of Recessions1. Credit crunches Banks may suddenly stop or slow lending activity.2. Bankruptcies Bankruptcy typically involve concealment of assets, concealment or destruction of documents, conflicts of interest, fraud claims and false statements or declarations.3. Deflation Persistent decrease in the general price level of goods and services.4. Foreclosures Legal and professional proceeding in which a lien holder, usually a lender, obtains a court order of redemption.5. Unemployment when a person is available to work and currently seeking work, but the person is without work.
  27. 27. Current Markets conditiono We all know that markets have slumped.o We read about job-loses in news papers.o People talk about atleast 24 months of recession.o Early entrants are not getting jobs.o Companies are closing.o Sales are not picking up.o Suddenly cash has evaporated from the market.Simple tips for employees during recession timeso Profitability is seriously hit.
  28. 28. How to come out of Recession?It is unhealthy for any nation to be in Recession;So, Government will take certain countermeasures to eliminate or reduce the effect of recession for turnaround;Important Point : Today, it is a market Economy,*Producers can produce and can sell at their prices and Consumers;can decide to buy or not…Here both Producers and consumers are free to act without forced action.Simple tips for employees during recession times
  29. 29. Government Plans against the Recession?Hence, Government does not have direct control on Producers’ & the Consumers’ behavior; But, they can influence millions of Producers &Consumers with Government’s policies; Government has 2 plans Fiscal Policies Monetary Policies (By Govt.) (By RBI) Government influences the RBI manipulates economy by changing how the available supply of it (Government) spends money in the country and collects moneySimple tips for employees during recession times
  30. 30. Govt control through RBIRepo Rate: Repo rate is the rate at which the banks can borrow money from a central bank of the country in order to avoid shortage of funds. It is also a financial & economic tool in the hands of government to control the availability of money supply in the market by altering the repo rate from time to time.Current repo rate is 4.7 %.Reverse Repo Rate :Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. Current rate is 3.25 %.CRR :Cash Reserve Ratio is the amount of money that the banks have to necessarily keep with the RBI.The RBI pays the interest on the amount kept with it. Current CRR rate is 5.0 %.Simple tips for employees during recession times
  31. 31. Govt_Fiscal PoliciesSee the flow : Fiscal Government influences the economy by changing Policies how Government spends and collects money 1] Tax cuts for More money businesses or available for for individuals spending 2] More spending Individuals get Demand picks by Govt. to salary and spend up; Market create jobs money can recover; 3] Automatic Some income to fiscal policy; unemployed Unemployment people to spend InsuranceSimple tips for employees during recession times
  32. 32. Govt_Monetary PoliciesSee the flow : Monetary Government manipulates the available supply Policies of money in the country More money 1] Reduce CRR available for bank for banks to give loans Demand picks up; Market 2] Lower the Individuals take can recover; Repo & Reserve more loan repo rates`Simple tips for employees during recession times
  33. 33. What about India in global market crises Most of the developing Currently, GDP Growth economies like China, Slow Down Rate Down; But, India; Stage; Not yet Still expected to be in Recession Around 6% in India Most of the developed economies like US, Currently, GDP Growth Japan, Germany, etc in Recession Rate Negative;Simple tips for employees during recession times
  34. 34. Employee - What do I do during recession?TGC Prasad, Bangalore
  35. 35. Wise Employer-Recession as Challengeo Rather than earning the profit some wise employer treat this recession as a challenge and to keep employees moral up and maintain the relation with industrial harmony.o Took this time to set the good belief and confidence among the all employees within the recession.o Encourage their employees for enhanced training programs,to increase their domain knowledge as per the company’s future work policies,and prepare the skill sets required after the recession time.o Offers professional and personnel development programs which will helps an every individual throughout their lifetime.o Reviews their company policies and re-structure and makes the positive changes with the help of expert’s opinion.o Instead of deployment,thinking to retain the talent and experience with the committed options.o Implement the energy cost saving policies.o Hunting for new customers by offering low cost and better quality service.o Take the advantages of Govt. policies during the recession time.Simple tips for employees during recession times
  36. 36. Don’t worryWhat goes down will always go up, Markets will rebound – these tips will prepare you to be a winner !! HOPING THIS TIME RECESSION VANISHES SOON SO THAT INDIA GETS BACK TO ITS STRONGER GDP GROWTH RATE OF 8% TO 10% . (AS PER THE EXPERSTS OPINIONS IT WILL LAST TILL Q3 of 2009).. You can be updated yourself with the current economic condition throughSimple tips for employees during recession times ‘Business TV-channels,News,News papers’.
  37. 37. Simple tips for employees during recession times

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