Essays on Managing Contagion Risk during Economic, Financial and Political Shocks Assignment

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The paper "Managing Contagion Risk during Economic, Financial and Political Shocks" is an outstanding example of a micro and macroeconomic assignment. Economic Contagion refers to the spread of financial crises throughout a geographic region. Contagion can be described as a situation whereby economic shock in a particular economy spreads out and affects other economic regions in terms of price increase (Valdé s, 1997). Financial Contagion can be experienced at a domestic level as well as an international level. Economist uses the concept of contagion to explain the spread of bank runs, strikes across industries or firms, and business fluctuations across economies.

Contagions also result in the spread of wage increases secured by labour unions to non-union sectors. Increasing financial globalisation is being influenced by different forces. These forces include; investors, financial institutions, government and borrowers. The government moves to liberalize regulations on the domestic financial sector and the capital account of the balance payment results to globalisation. In the last 30 years, there has been a notable lifting of regulations in developed and emerging nations. Increased borrowing abroad has made organizations and households relax their financial constraints and smoothing consumption and investment, thus, greater economic globalisation (Rijckeghem, & Weder, 2001).

Financial institutions have significantly contributed to globalisation. Advanced information technology has reduced the importance of geography by enabling several international corporations to provide services to several markets from a central location. Financial crises in a particular country are usually associated with economic contraction and devaluation of the exchange rate which negatively affects exports of trading partners through a drastic fall in demand and a loss of price competitiveness. Such trade-related shock propagation work through bilateral trade links as well as indirect trade links resulting from third common markets.

In order to attain cross-country diversification, International investors take advantage of financial globalisation. Liberalization of financial markets has allowed organizations and individuals based in developing countries to invest easily in emerging markets using different tools (Dungey, & Martin, 2001).

References

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