The Credit Crisis and Financial Crisis 2
Content
THE GLOBAL FINANCIAL CRISIS Prepared by: Amghar Redwan Amghar Khalid Abidi Abdelmajid
THE OUTLINE OF THE PRESENTATION
What is a financial crisis ? What are the main causes of the current financial crisis? The crisis of credit(banking crisis) visualized(video) What is the impact of the financial crisis on the world economy? impact on the united state economy impact on other developed countries and emerging economies impact on developing economies Effect on global output growth . financial crisis and trade The impact of the financial crisis on commodity prices and the poor What are the possible solutions for the financial crisis?
financial stability plans How to avoid banking crisis in the future? Features of the financial crisis (pictures) Sources Conclusion
What is a financial crisis ? A sudden drop in the value (price) of one or more of the assets. Asset is something of value that a person or a company owns. Asset can be either physical capital (machinery, equipment or buildings) or financial assets (stocks and savings account.etc.
TYBES OF FINANCIAL CRISES:
Financial crisis may take the form of a sudden collapse in:
The stock market. The currency of a state. The real estate market. A group of financial institutions.
then to extend to the rest of economy.
What led to the current financial crisis ?
The current global financial crisis was triggered by the sub-prime mortgage crisis in the US. sub-prime refers, here, to a borrower that is not prime. This borrower who might be less likely to repay a loan. Because of :
Bad credit. Low income or poor. Large loans relative to the securing proberty.
HOW THAT HAPPENED????
Globally, companies and individuals have an ever increasing demand for capital for both personal and corporate investments. Traditionally, banks have been very conservative and stringent in their requirements.
Banks have financed their mortgage lending through the deposits they receive from their customers. This has limited the amount of mortgage lending they could do. This makes access to finance difficult for the majority of the people.
HOW THAT HAPPENED????
In recent years, banks have moved to a new model where they sell the mortgages to the investment bank. This has made it much easier to fund additional borrowing to sub-prime borrowers .
HOW THAT HAPPENED????
Relaxation of lending terms for mortgages was as a result of the boom in the housing sector. Millions of Americans with poor credit history who might not have bought their homes were granted sub-prime mortgages. This led to the growing of the mortgage bond market as mortgage brokers focused on less than ideal clients.
HOW THAT HAPPENED???? This proved to be very profitable as banks earned a fee for each mortgage sold and urged brokers to sell more and more. The sub-prime mortgages, referred to as Adjustable Rate Mortgages (ARM) had a fixed payment for two years. Then reset to higher (double the interest rate) rate sand became more expensive for the people to repay.
HOW THAT HAPPENED????
millions of Americans are having their homes repossessed due to failure to repay the mortgages. House prices which have been falling at an annual rate of 4.5 percent in the past 3 years and are expected to fall by at least 10 percent in 2008.
The crisis of credit (banking crisis) visualized
The impact of the financial crisis on the world economy: impact on the united state economy impact on other developed countries and emerging economies impact on developing economies
Impact on the united state
economy:
The banking industry has collapsed because of the sub-prime mortgages. As a result banks lost confidence in customers. The slow down in the building industry affected other industries negatively.
Impact on the united
state economy:
Car industry has collapsed too because of the decreasing of purchase power of the american people. GENERAL MOTORS and FORD fleed from bankrupcy tanks to the governmental support. A large number of employees left thier jobs because of this situation. LEHMEN BROTHERS: Ranked among the world's top investment banks. The sub-prime crisis with the decline in value of housing forced the company to take huge write downs on the value of those assets and led to the loss of about US$14 billion.
IMPACT ON EMERGING ECONOMIES
The emerging economies have to a great extent remained resilient to the global financial turmoil. However the strong growth in these economies has been affected by the global down turn in economic activity, hence growth is expected to moderate.
IMPACT ON OTHER DEVELOPED COUNTRIES
Financial markets in the developed world have been adversely affected by the financial crisis.This has weakened growth in these economies. IMF projections show that by end of 2008 and early 2009 most developed economies will be on the verge of a recession if not in a recession.
IMPACT ON DEVELOPING ECONOMIES:
The impact would be felt in the real economy as a result of reduced demand for imports. Banks in the developing economies will likely see their credit lines from foreign banks squeezed and the increasing financial flows that these economies have been experiencing are going to dry up.
Effect on global output growth
- There is global slow down in economic growth. -Reduced demand has led to price deflations in other countries
financial crisis and trade
Credit shortages reduce imports and may under certain circumstances, render trade financing more difficult. Declining growth reduces trading opportunities while raising competitive pressure Devaluation and international financial support can stimulate trade Reduced demand for imports may affect prices Declining world output also depresses world trade. Financial crisis possess risks on trade payments
What are the possible solutions for the financial crisis? Financial stability plans:
The US$700 billion bailout package has given hope to the US economy The British government has set aside £500 billion for huge injections of liquidity into the banking system Other EU countries, have put aside over US$2.3 trillion in guarantees and other emergency measures to save the banking system
What are the possible solutions for the financial crisis?
How to avoid banking crisis in the future?
What are the possible solutions for the financial crisis?
Islamic financial system may have a role through providing the system of balance and the idea of morality to the global financial system.
THE OUTLINE OF THE PRESENTATION
What is a financial crisis ? What are the main causes of the current financial crisis? The crisis of credit(banking crisis) visualized(video) What is the impact of the financial crisis on the world economy? impact on the united state economy impact on other developed countries and emerging economies impact on developing economies Effect on global output growth . financial crisis and trade The impact of the financial crisis on commodity prices and the poor What are the possible solutions for the financial crisis?
financial stability plans How to avoid banking crisis in the future? Features of the financial crisis (pictures) Sources Conclusion
What is a financial crisis ? A sudden drop in the value (price) of one or more of the assets. Asset is something of value that a person or a company owns. Asset can be either physical capital (machinery, equipment or buildings) or financial assets (stocks and savings account.etc.
TYBES OF FINANCIAL CRISES:
Financial crisis may take the form of a sudden collapse in:
The stock market. The currency of a state. The real estate market. A group of financial institutions.
then to extend to the rest of economy.
What led to the current financial crisis ?
The current global financial crisis was triggered by the sub-prime mortgage crisis in the US. sub-prime refers, here, to a borrower that is not prime. This borrower who might be less likely to repay a loan. Because of :
Bad credit. Low income or poor. Large loans relative to the securing proberty.
HOW THAT HAPPENED????
Globally, companies and individuals have an ever increasing demand for capital for both personal and corporate investments. Traditionally, banks have been very conservative and stringent in their requirements.
Banks have financed their mortgage lending through the deposits they receive from their customers. This has limited the amount of mortgage lending they could do. This makes access to finance difficult for the majority of the people.
HOW THAT HAPPENED????
In recent years, banks have moved to a new model where they sell the mortgages to the investment bank. This has made it much easier to fund additional borrowing to sub-prime borrowers .
HOW THAT HAPPENED????
Relaxation of lending terms for mortgages was as a result of the boom in the housing sector. Millions of Americans with poor credit history who might not have bought their homes were granted sub-prime mortgages. This led to the growing of the mortgage bond market as mortgage brokers focused on less than ideal clients.
HOW THAT HAPPENED???? This proved to be very profitable as banks earned a fee for each mortgage sold and urged brokers to sell more and more. The sub-prime mortgages, referred to as Adjustable Rate Mortgages (ARM) had a fixed payment for two years. Then reset to higher (double the interest rate) rate sand became more expensive for the people to repay.
HOW THAT HAPPENED????
millions of Americans are having their homes repossessed due to failure to repay the mortgages. House prices which have been falling at an annual rate of 4.5 percent in the past 3 years and are expected to fall by at least 10 percent in 2008.
The crisis of credit (banking crisis) visualized
The impact of the financial crisis on the world economy: impact on the united state economy impact on other developed countries and emerging economies impact on developing economies
Impact on the united state
economy:
The banking industry has collapsed because of the sub-prime mortgages. As a result banks lost confidence in customers. The slow down in the building industry affected other industries negatively.
Impact on the united
state economy:
Car industry has collapsed too because of the decreasing of purchase power of the american people. GENERAL MOTORS and FORD fleed from bankrupcy tanks to the governmental support. A large number of employees left thier jobs because of this situation. LEHMEN BROTHERS: Ranked among the world's top investment banks. The sub-prime crisis with the decline in value of housing forced the company to take huge write downs on the value of those assets and led to the loss of about US$14 billion.
IMPACT ON EMERGING ECONOMIES
The emerging economies have to a great extent remained resilient to the global financial turmoil. However the strong growth in these economies has been affected by the global down turn in economic activity, hence growth is expected to moderate.
IMPACT ON OTHER DEVELOPED COUNTRIES
Financial markets in the developed world have been adversely affected by the financial crisis.This has weakened growth in these economies. IMF projections show that by end of 2008 and early 2009 most developed economies will be on the verge of a recession if not in a recession.
IMPACT ON DEVELOPING ECONOMIES:
The impact would be felt in the real economy as a result of reduced demand for imports. Banks in the developing economies will likely see their credit lines from foreign banks squeezed and the increasing financial flows that these economies have been experiencing are going to dry up.
Effect on global output growth
- There is global slow down in economic growth. -Reduced demand has led to price deflations in other countries
financial crisis and trade
Credit shortages reduce imports and may under certain circumstances, render trade financing more difficult. Declining growth reduces trading opportunities while raising competitive pressure Devaluation and international financial support can stimulate trade Reduced demand for imports may affect prices Declining world output also depresses world trade. Financial crisis possess risks on trade payments
What are the possible solutions for the financial crisis? Financial stability plans:
The US$700 billion bailout package has given hope to the US economy The British government has set aside £500 billion for huge injections of liquidity into the banking system Other EU countries, have put aside over US$2.3 trillion in guarantees and other emergency measures to save the banking system
What are the possible solutions for the financial crisis?
How to avoid banking crisis in the future?
What are the possible solutions for the financial crisis?
Islamic financial system may have a role through providing the system of balance and the idea of morality to the global financial system.
