Multinational Bank And Global Financial - Myassignmenthelp.Com

Question: Discuss about the Multinational Bank And Global Financial. Answer: Introduction The worst economic disaster after the economic depression that took place in 1929 was known as the Global Financial Crisis (GFC, 2008-09). The deregulation that happened in the financial industry was the major reason that led to the creation of this crisis. The rise in unemployment and the decline in the price of the real estate were some of the major causes that led to the evolution of GFC. It happened in the year 2007, as there was a decline in the assurance level of the investors present in the US regarding the mortgages of the subprime products. The increase in the volatility rate and the fall in the stock market were some of the major factors that contributed towards this crisis in 2008 of September. The collapse in the price of the houses led to a fall in the flow of remittance on a global manner by 6 percent in 2008-09. The institution known as IMF reviewed a statement saying that the output level shranked to 2.2 percent as the developing and the developed countries went in to a state of financial crisis (Attig et al. 2016). Nepal is considered to be not impacted on a direct manner by the effects of GFC but has felt it in an indirect manner. Discussion Possible causes Global saving- The core grounds regarding the rise in the asset prices was basically the factor of deficit that was seen in the current accounts, which prevailed in the US market. The countries with a deficit in their trade and current accounts were due to the increase in the savings of the people, which curtailed the borrowing capacity and becoming a lender to the US. The increase in the capacity to save was seen mostly in the developing countries, as there was reduction in the investment within the capital market that created an increase in saving on a global manner. The markets with respect to capital in the developed places were searching for funds, which would help in increasing the market demand along with the asset prices in the US stock and housing market. Price of houses- The decline in the price of the houses in a substantial manner was one of the shocks that led to the formation of global financial crisis. The period of 1996-2006 saw a rise in the value due to the lower interest rates and stress of forming a fresh economy. From middle of 2006 till 2009 mid-February, it was seen that the price of the houses had declined the most since 1987 (Balakrishnan et al. 2016). The mortgage lending mainly attracted the wealthy people so that it can be help in saddling the burdens regarding the mortgages that were large in nature. Figure 1: Housing prices (Source: imf.,org 2018) Rise in subprime lending and rate of interest- There was a further increase in the price of the houses because of sloppy standards of interest rate for the purpose of lending, which is associated with the global economy as well. The borrowers who had the loans were mainly subprime lenders and the standards also suffered because of the lack in the worthiness of credit of them. The rise in fed rates resulted in costly borrowing (Dungey and Gajurel 2014). Furthermore, the cost of the buildings also created an impact, as the mortgage rate moved from descending to ascending rates in the market place. Credit booms- The trigger for the crisis was the major participation that the expansion rate had on credit, which kept on increasing in the market. The access for the credit increased at a greater rate as there was a boom in the market regarding the houses in places like Ireland, Spain, European countries and the UK. The recurring flux that was happening in the economy was because of the rapid credit growth. The indebtedness in the housing properties also increased in the US market after 2000 due to the slow credit growth within the economy (Bauer and Thant 2015). The fiscal innovations and the mortgage finances were the major contributors that led to the problem in housing sector indebtedness. Probability of repeating the financial crisis Regarding the job cycle theory, it can be seen that the financial crisis can be repeated in the future. There is a possibility for this occurrence because of the stage of development, which would escort the market to another phase of depression. Figure 2: Possibility of GFC (Source: Created by Author) Financial crisis of different countries and Nepal The effect on financial sector- The presentation on the level of macro economy revelation to the foreign market and the health of the financial sector changes from one economy to another. The impact of foreign direct investment along with the flow of the capital had an adverse impact and influenced the economy of countries like India. The deficit in the fiscal and the current account has also affected countries like Sri Lanka as the inflow of capital was low through the external manner and the spread of the bond of the bond in the nation increased. The shock on the global fiscal crisis was also seen in Nepal because the nation was growing through the state of lower growth. The decline regarding the prices of the fuel and food led to the increase of inflation, which was indicated by the loans that were not performing in the market. These factors contributed heavily towards a weaker financial sector within the country (Albertazzi and Bottero 2014). Impact of remittance- The turning down of the remittance flow in 2008-2009 was 6 percent because of the effect of financial crisis on a global manner and the least striking countries were the regions in Asia Pacific when compared to a fall of two percent in countries like Central Asia, Latin America, Middle East and North Asia. Figure 3: Flow of remittance (Source: Vazquez and Federico 2015) Figure 4: Growth of remittance in Nepal (Source: lib.icimod.org 2018) In the case of Nepal it can be seen that the flow of remittance did not create any impact and the flow did not decries from 1998 to 2010. The country was the 5th largest in the world with respect to the recipient of remittances and the share of Gross Domestic Product. Reserve for foreign exchange- The business industry of the countries that were developing had an effect because of the crisis, as it increased the funding problems that were the cause of the foreign exchange loss. The funding needs of the vendor needed to be decreased, which resulted in providing the funds that were necessary in funding the foreign exchange. The pool that was present in foreign exchange in the Nepalese banks for decreasing the interest income and the remittance inflow was delayed. The reserves in the foreign exchange decreased from 21.9 percent to 17.3 percent from the financial year 2007-08 to 2008-09. Macroeconomic balances impact- The trade stock decreased the macroeconomic balances in the South Asian countries. Few months back during the financial crisis time, it can be seen that the commodity prices were declining, as there was a delay in the earnings from the exports and the remittance flow (Vazquez and Federico 2015). The decrease in the price level may result in the decline of the earnings from the income as well. Import- The products were imported, as it saw a increase in the features of the fuel and food. The decrease in the prices of the commodity on a further level was because of the recession that happened in the OECD countries and the South Asian countries, which also had an optimistic impact. Impact of financial crisis on housing industry Investment- The increase in the price of the assets within the banks along with process of funding process that caused a delay were some of the major attributors towards the risk in the growth of investment. This resulted in keeping the profits low for the organizations that deal with the products for exporting purposes. The finances that are available in a domestic manner for investment purposes decreased for delaying the investment rate within the local economy. The growth of investment in the South Asian countries decreased because of the delay in earning of exports and foreign capital (Boychuk et al. 2012). Impact of GFC in share market The financial crisis led to a higher volatility degree within the stock market, as it varies from one market to another and the crisis in 2009 was because of the mortgage in the subprime market and the liquidity crisis that led the crash in the stock market. Most of the countries were under the grip of the crash that happened in the stock market and the crisis that took place in the US market increased the volatility rate in the markets of Australia and New Zealand. The stock markets that were present in Germany, US and Japan had a pattern of volatility as well. The volatility level increased that led to the rise in the borrowing costs, which resulted in low confidence within the investors (Benetrix et al. 2015). The monetary industry in Nepal has no relation with the financial system in a global manner closely for which the economy did not endure from the impacts of the financial crisis in the beginning. The share and the investment market within the nation have no link with the investment on a global manner in a direct manner. The availability of the funds in the Nepalese banks led to an indirect impact for the crisis as the demand declined in an aggregate manner along with a weak spending capacity of the consumers (Cayon et al. 2017). Reforms for reduction in financial crisis Capital planning and stress testing- The federal reserve of the banks have to analyze their capital, which help in the review of the capacity of lending at the time of economic downturn. The testing of the level of stress can be another method that will help in designing a framework based on risk capital (Obstfeld 2015). Heightened regulation of capital- The requirement of capital relying on has to be increased, which will help in the asset relation with the risks and the common equity (Haas and Lelyveld 2014). The capital standards of the banks have to be higher along with regulations needs to be done on the basis of risks so that the banks can allot more capital on the assets that are risky. Conclusion Therefore, the global financial crisis created different effects on various countries and Nepal in particular. The crisis happened during the second and third encompassing of the flow of remittance within the country along with the reserves in the foreign exchange and the price of the commodities. Furthermore, the crash in the stock market of the different countries had limited the growth in the market. Reference List Abraham, V. and Rajan, S.I., 2014. Global Financial Crisis and Return of South Asian Gulf Migrants. India Migration Report 2012: Global Financial Crisis, Migration and Remittances, p.197. Albertazzi, U. and Bottero, M., 2014. Foreign bank lending: evidence from the global financial crisis. 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