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FINANCIAL CRISIS IMPACT OF

AN ECONOMY

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Financial

Crisis:

The term financial crisis is applied

broadly to a variety of situations inwhich some financial institutions or

assets suddenly lose a large part of

their value.

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Types of Crisis:

1.Banking Crisis:

A situation in which bank runs are

widespread is called a systematic

banking crisis or just a banking panic.

when a bank suffers a sudden rush

of withdrawals by depositors, this

called a bank run.Sweden Banking Crisis 1991

Reason: speculative real estate and consumer

debt

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2.Speculative Bubbles and Crashes:

A financial asset (for example

stock) exhibits a bubble when its price

exceeds the present value of the

future income (such as interest or

dividends).

Example:

United States Housing

Bubble /Subprime Mortgage Crisis

2008.

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3.International Financial crises:

When a country that maintains a

fixed exchange rate is suddenly forced

to devalue its currency because of a

speculative attack, this called acurrency crisis or balance of payments

crisis.

Example:European Exchange Rate

Mechanism suffered crisis in 1992-93

and were forced to devalue. In Asia

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4.Wider Economic Crisis:

Negative GDP growth lasting two or

more quarters is called a recession.

An especially prolonged recession

may be called a depression.

While long period of slow but not

necessarily negative growth is called

economic stagnation.

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Recession VS Depression

When your neighbor lost job-Recession

When you last jobDepression

Great Depression in US 1929

Failure of Govt efforts to regulate Interest rates.

Bank Failures

Stock Market Crashes

United States Great Britain France Germany

Industrial production 46% 23% 24% 41%

Wholesale prices 32% 33% 34% 29%

Foreign trade 70% 60% 54% 61%

Unemployment 607% 129% 214% 232%

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How to Measure the

Economic/Financial stability of a

Country GDP

Balance of Payments

Currency Appreciation Inflation(Under control)

Returns in Financial Markets

Political stability in Home country andrest of the world

Availability of Resources

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Gross Domestic

ProductProductio

n

Employment

Income(S

alaries)

Spending

Sales tothe

Company(dependingcompany)

Productio

n

GDP

3M's(Men,Money,Material)

Con

sumers/Coustomers/Govt

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Gross Domestic

Product

Investors

Share Price will Increase(EPS)

Profits

Sales to the Company(depending company)

Spending

Income(Savings)

Employment

Production

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IMPACT OF A COUNTRY

Currency Depreciation

Balance of payments(Deficits)

Current Account

Capital Account

Downfall of Production in Sectors

Downfall of Profitability in Financial Markets

Rise in Deflation

Rise in unemployment Hike in interest rates

Decline of Countrys Growth rate(GDP)/Overall

Economy Downfall

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Current Account of INDIA

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Capital account of INDIA

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FIIS Investment in Last

10years

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Stock Changes in the year

2008

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High Growth in short span of

time Leads to Unexpected andUnavoidable Damage for Longtime

Never spend your money before

you have earned it. Thomas Jefferson

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Any questions