Crises

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Crises

  1. 1. PRESENTED BY:- Rishi Chaudhary Sakshi Narayan 1
  2. 2. What is crisis..???• An unstable and dangerous situation affecting an individual, group, community or whole society.• Negative changes in the security, economic, political, societal or environmental affairs, especially when they occur abruptly, with little or no warning.• A testing time or an emergency event. 2
  3. 3. 3
  4. 4. Poverty Related CrisisInternational Types Economic Crisis Of Crisis Crisis Environment al Crisis 4
  5. 5. Debt crisis• A debt crisis deals with countries and their ability to repay borrowed funds.• It would be continuous deficit spending that keeps adding to the national debt. Eventually, we reach the point where servicing the debt can not be maintained leading to a default on the obligation. i.e. Greece.• From late 2009, fears of a sovereign debt crisis developed among investors as a result of the rising private and government debt levels around the world together with a wave of downgrading of government debt in some European states. 5
  6. 6. • In Greece, unsustainable public sector wage and pension commitments drove the debt increase.• The European Central Bank has taken measures to maintain money flows between European banks by lowering interest rates and providing weaker banks (mostly from crisis countries) with cheap loans of more than one trillion Euros.• Three countries significantly affected, Greece, Ireland and Portugal, collectively accounted for 6% of the euro zones gross domestic product (GDP). In June 2012, also Spain became a matter of concern, when rising interest rates began to affect its ability to access capital markets, leading to a bailout of its banks and other measures. 6
  7. 7. • To address the deeper roots of economic imbalances most EU countries agreed on adopting the Euro Plus Pact, consisting of political reforms to improve fiscal strength and competitiveness. 7
  8. 8. Causes of debt crises• Rising households & government debt crisis• Trade imbalance• Structural problem of euro zone system• Monetary policy inflexibility• Loss of confidence 8
  9. 9. Financial crises• Stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth• A financial crisis would be the failure of the banking system resulting in a severe restriction on the availability of credit. If businesses are unable to secure credit to maintain or expand business activity it would lead to a contraction of the economy. i.e. U.S. banking crisis. 9
  10. 10. Financial crisisA Situation in which the value of the financial institutions or assetsdrops rapidly Reasons for Financial crisis •Global Imbalance •Housing bubble •Imprudent mortgage lending • Withdraw money from financial institutions 10
  11. 11. The sharpest global decline since 1970 GDP Growth 10 Percent change 8 6 4 2 0 70 73 76 79 82 85 88 91 94 97 00 03 06 09 -2 19 19 19 19 19 19 19 19 19 19 20 20 20 20 -4 Advanced economies Emerging and developing economies World 11
  12. 12. Economic crisisEconomic crisis is the situation when any economy face the problem of thebalance of the payment and start the defaulting in the central bank installment Reasons for the Economic crisis •Current account deficit •Currency overvaluation •Fiscal deficit •Balance of payment 12
  13. 13. Factors that contributed to the financial crisisSurplus balance of payment and increase in Growth in foreign capitalsavings 1Low long term interest rates to stimulate Low interest ratesinvestment 2Homeownership - investment, source of Promotion of homeownership by theproperty tax and stability 3 federal governmentPlaced some derivatives and firms beyond Deregulatory measures taken byeffective regulation 4 Congress and SECSecuritization provided capital for on Growth of securitization and subprimelending and “reduced risks” 5 mortgagesEisenhower Fellowships – 2010 Women’s Leadership Program
  14. 14. Impact on WorldEisenhower Fellowships – 2010 Women’s Leadership Program impact of the financial crisis October 2010 The Slide 14
  15. 15. How financial crisis is affecting developing countries Financial crisis is more global than any other period of financial turmoil in the past 60 years. Extent and severity of the crisis began with the bursting of the housing bubble in the United States in August 2007 In line with previous crisis, the pre crisis period was characterized by: • Surging asset prices, that proved unsustainable • Prolonged credit expansion leading to debt accumulation • Emergence of financial instruments • Inability of regulators to keep up • New – rapid expansion of securitizationEisenhower Fellowships – 2010 Women’s Leadership Program impact of the financial crisis October 2010 The Slide 15
  16. 16. Impact on Indian economy• A prolonged and widespread debt crisis in Europe could have a sustainable negative impact on Indian Economy.• If the solution of Greece crisis takes longer than anticipated or if the confidence crisis in Europe would become more wide spread, there could be a substantial negative impact on India.• If the debt crisis would spread to other nations in Europe & their banking system, european entities could start Repatriation of funds to Indian Stock markets. Slide 16
  17. 17. • This could negatively impact the Indian stock market and lead to lower foreign currency reserves.• Severe macro - economic impact due to turmoil.• At least 27% of India’s trade is with Europe and crisis will impact the India’s export to the region. 17
  18. 18. Conclusions• Cautious Eurozone response to Financial Crisis – Interest rate policy reaction delayed: concentration on inflation target – Fiscal policy reaction muted: Stability & Growth Pact• Common currency members avoided large devaluations and foreign currency debt.• European governments have tried to act together, not always successfully.• Limited impact of falling exports due to extensive internal trade relationships.• Greece facing difficult adjustment problems, European banks avoiding losses on Greek bonds.

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