Essays on The Impact of GFC on the Global Financial System Coursework

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The paper 'The Impact of GFC on the Global Financial System" is a good example of finance and accounting coursework. The global economy started to suffer in July 2007 and lasted for about five years, was as a result of the credit crunch in the United States (Forrest & Yip, 2011). Investors lost confidence in the value of the sub-prime mortgage, and this, in turn, caused a liquidity crisis. Thus, the United States Federal Bank was forced to inject a considerable amount of capital into financial markets. The financial crisis got worse in mid-2008 when stock markets in major economies, including Australia, Greece and Ireland collapsed and became highly unpredictable.

In addition, consumers throughout the globe lacked confidence in the markets, and in turn, refrained from investing due to the uncertainties that lay ahead (Gibson, Hall & Tavlas, 2012). Analysts argue that the 2007-2009 global economic meltdown had severe consequences just like the Great Depression of the 1930s because it brought an era of great prosperity to an unexpected halt (Emerson et. al, n.d). In Australia, the effects of GFC were less devastating compared to many countries.

Compared to other developed nations, the Australian economy has recorded considerable growth despite the deteriorated financial conditions. The Australian banks have continued to record huge profits against the economic slump (Forrest & Yip, 2011). This essay discusses the imрасts of thе Global Finаnсiаl Crisis (GFС) on thе global finаnсiаl system and how Australian policymakers deal with the problems presented by the GFC. The Impact of GFC on the Global Financial System The 2007-2009 GFC heightened market volatility in the global financial markets. According to Cheng (2007), volatility determines whether financial assets have been trading with wide swings or quietly.

When the GFC hit, investors throughout the world resulted in impulsive buying behaviour, and this, in turn, caused extreme volatility. The Global Financial Crisis, coupled with the United States housing bubble, had devastating consequences on the real economy. Developed countries including the US, Ireland, Portugal, Greece and Spain responded to this GFC by manufacturing numerous economic bailout packages, in order to cushion financial institutions such as banks and insurance companies from a steep decline. The US and other Western nations recognized the fact that the Global Financial Crisis had devastating effects on both the financial systems and the federal government’ s balance sheets (Cetorelli & Goldberg, 2012).

Thus, numerous economic bailout packages were manufactured with the view of bolstering domestic demand, strengthening the broader Euro-zone economies and preventing additional increases in bond yields (Hubbard, Garnett & Lewis, 2012). The 2007-2009 GFC caused a write-down of subprime mortgage assets. In the US, the uncomplicated credit conditions caused a decrease in interest rates. This, in addition to an influx of foreign funds, caused a housing bubble.

Therefore, subprime mortgages were used to finance it, hence the subprime mortgage crisis (Hubbard, Garnett & Lewis, 2012). Consumers who had poor credit ratings were given easy access to mortgages, and thus, the default rates were high. The 2007-2009 international financial crisis caused the collapse of major banks. In a span of one month after the Lehman’ s bankruptcy, the global banking system almost came down. In the US and western countries, for instance, banking institutions were partly nationalized (Hubbard, Garnett & Lewis, 2012). In addition, the GFC saw the disappearance of investment banks in the US.

According to economists, more than 27trillion US dollars were wiped from the international stock markets following the Global Financial Crisis. During this time, the Dow Jones Index hit a record market low of 7,773 (Sheng, 2009). Governments throughout the world resulted in huge taxpayer-financed bail outs to cushion the banks against collapsing. Also, numerous monetary, as well as fiscal stimulus played the critical role of preventing further collapse of major banks.

References

Cetorelli, N., & Goldberg, L. S. (2011). Global banks and international shock transmission: Evidence from the crisis. IMF Economic Review, 59(1), 41-76.

Cetorelli, N., & Goldberg, L. S. (2012). Liquidity management of US global banks: Internal capital markets in the great recession. Journal of International Economics, 88(2), 299-311.

Cheng, G. (2007). 7 Winning Strategies For Trading Forex: Real and actionable techniques for profiting from the currency markets. Massachusetts: Harriman House Limited.

Cottarelli, C., Gerson, P. & Senhadji, A. (2014). Post-crisis Fiscal Policy. Cambridge: MIT Press.

Emerson, M et.al. (n.d). The Strategic Consequences of the Global Financial and Economic Crisis. Brussels: CEPS.

Henry, K. (2010), “The Australian banking system - Challenges in the post global financial crisis

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Forrest, R. & Yip, N.M. (2011). Housing Markets and the Global Financial Crisis: The Uneven Impact on Households. Cheltenham and Camberley: Edward Elgar Publishing.

Gibson, H. D., Hall, S., & Tavlas, G. (2012). Fundamentally Wrong: Market Pricing of Sovereigns and the Greek Financial Crisis. Journal of Microeconomics , 498-516.

Goodhart, C. A. (2014). Lessons for monetary policy from the euro-area crisis. Journal of Macroeconomics , 38, 10-26.

Gospel, H., Pendleton, A. & Vitols, S. (2014). Financialization, New Investment Funds, and Labour: An International Comparison. Oxford: Oxford University Press.

Gup, B. F. (2010). The Financial and Economic Crises: An International Perspective. Cheltenham and Camberley: Edward Elgar Publishing.

Hubbard, G., Garnett, A. & Lewis, P. (2012). Essentials of Economics. New Jersey: Pearson Higher Education AU.

Sheng, A. (2009). From Asian to Global Financial Crisis: An Asian Regulator's View of Unfettered Finance in the 1990s and 2000s. Cambridge: Cambridge University Press.

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