Financial Crisis

LINCOLN INTERNATIONAL COLLEGE

(AFFILIATED TO LINCOLN UNIVERSITY COLLEGE, MALAYSIA)

A REPORT

ON

The Financial Crisis and its Impact on Contemporary Business

Submitted to:

LIC Academics, Dhobidhara, Kathmandu

Submitted by:

Name: Bikesh Pokharel

Program: MBA

Roll No: 7

Submission Date: 4/4/2015

Introduction

For the 2008–2012 crisis, see Subprime mortgage crisis , Financial crisis of 2007–08 , and Great Recession The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics.

Other situations that are often called financial crises include 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 but do not necessarily result in changes in the real economy.

Causes and Consequences of Financial Crisis

1. Strategic complementarities in financial markets- financial crises are sometimes viewed as a vicious circle in which investors shun some institution or asset because they expect others to do so

2. Leverage- Leverage, which means borrowing to finance investments, is frequently cited as a contributor to financial crises

3. Asset-liability mismatch- Another factor believed to contribute to financial crises is asset-liability mismatch, a situation in which the risks associated with an institution's debts and assets are not appropriately aligned.

4. Uncertainty and Herd Behavior- Many analyses of financial crises emphasize the role of investment mistakes caused by lack of knowledge or the imperfections of human reasoning.

5. Regulatory Failure- Insufficient regulation by the government.

6. Contagion- Contagion refers to the idea that financial crises may spread from one...