Essays on Market Reaction to the Crisis Coursework

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The paper "Market Reaction to the Crisis" is a perfect example of finance and accounting coursework.   In 2008, the world experienced one of the worst financial and economic crises since the occurrence of the great depression in the 1930s. The crunch had many negative economic and financial impacts on almost all sectors of the world economy. Institutions that had been in existence for long periods of time came crumbling down in a matter of months. The situation was so dire that even banks which usually gave financial assistance in such cases were severely affected.

Some governments tried implementing stimulus programs to save their institutions but this was barely enough. Closer scrutiny at the crisis, economist and financial experts gave some reasons that could have led to the crisis. Developed and emerging markets were worst hit by the crisis. Many people were rendered jobless as employers sought to survive with leaner budgets and growing demand (Nanto, 2009, p. 4). As a result, those who had taken mortgages and loans had no choice but to foreclose on their property. The situation affected the stock market and trading of important assets.

Major share prices went down and essential commodities become more expensive. The crisis was an accumulation of factors over previous years that climaxed finally in 2008 (Coulibaly, Sapriza, & Zlate, 2013, p. 27). Normally, economies experience cycles of booms and slumps within given periods of time. During periods of boom, they are expected to gather enough resources in terms of wealth, information, and expertise that would help them survive crunches. In 2008, not all organisation and companies went under. Some organisations were able to withstand the shock without any external assistance.

Though profitability fell to certain percentages, they were able to meet their costs and survive the volatile markets. Some organisations made even losses but they were still able to survive the crunch. Economists and financial analysts came up with some explanations as to why the crisis in 2008 was o severe compared to others in recent history. There were small underlying factors that persisted and finally exploded in 2007-2008. One of the major reasons for the crisis was corporate governance where corporations engaged in ambitious expansion plans at the expense of shareholders welfare.

They were forced to pay debtors using shareholders’ ’ money. The housing sector in the previous years had been experiencing a boom like never before. This was a result of a developing middle class which was more independent and self-sustaining. Many resources were transferred to this market in terms of loans and mortgages. Low-interest rates facilitated increased borrowing which would later compromise financial institutions. This came to be known as the bubble burst situation (Savona, Kirton, & Oldani, 2011, p.

48). Despite the effects of the crisis, markets recovered and growth as experienced again. Experts view that the crisis was not evidence of market failure but the ability of markets to react to shocks and rectify the shortcomings that lead to crisis. The fact that a majority of the institutions survived the crises shows that markets have the ability to withstand turbulent times and come up with a mechanism that will ultimately solve the underlying problems. The 2008 crunch was a learning process for many organisations. Many of them had not experienced such challenges in their lifetime of operations.

Organisations were left wiser in terms of strategies and financial competences. The lessons leant from the crisis have helped organisations to regroup and become more stabilised. In this research paper, the response to the crisis will be evaluated and how markets were able to deal with their shortcomings to rectify the effects of the crash.

References

Berkmen, P, Gelos, G., Rennhack, R, & Walsh, J, 2009, 'The Global Financial Crisis: Explaining Cross-Country Differences in the OutputImpact', International Monetary Fund , pp 3-10.

Coulibaly, B, Sapriza, H, & Zlate, A ,2013, 'Financial frictions, trade credit, and the 2008–09 global financial crisis', International Review of Economics & Finance ,vol 26, pp. 25-38.

Creighton, A, 2013, "The problem with banking on the future", Charter, vol. 84, no. 7, pp. 24-25.

Dominguez, K,& Hashimoto, Y,2012, 'International reserves and the global financial crisis', Journal of International Economics , vol 88,no 2, pp.388-406.

Erkens, D. H., Hung, M., & Matos, P. 2012Corporate governance in the 2007–2008 financial crisis:Evidence from financial institutions worldwide. Journal of Corporate Finance 18 , vol 18, pp.389–411.

Freedman, C., Kumhof, M., Laxton, D., Muir, D., & Mursula, S., 'Global effects of fiscal stimulus during the crisis', Journal of Monetary Economics , vol 57 no.5, pp. 506-526.

Freedman, C., Kumhof, M., Laxton, D., Muir, D., & Mursula, S,2010, Global effects of fiscal stimulus during the crisis. Journal of Monetary Economics , vol 57 no 5, pp. 506-526.

Nanto, D. K, 2009, 'The Global Financial Crisis: Analysis and Policy Implications', DIANE Publishing,Collingdale.

Savona, P., Kirton, J. J., & Oldani, C,2011, 'Global Financial Crisis: Global Impact and Solutions, Ashgate Publishing, London

Wu, B. U., & Ma, S,2013. Recovering From the Global Crisis: A Panel Study. Gastroenterology vol. 144, no.5,pp. 378-379

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