The economic and financial crisis from 2008 to 2009, also known as the global fi

Question

The economic and financial crisis from 2008 to 2009, also known as the global financial crisis, was considered to be the worst financial crisis since the Great Depression. The general situation at financial markets has been additionally complicated by introduction of new financial products and another mode of operations including globalization. Global financial market seem to be playing different function in economy and it has been working due to new regulations. Introduction of new trade platforms, online access to information, integration and globalization of the market caused some revisions of finance theories. What are reliable predictors of economic and financial crisis? Describe some achievements and pending issues in context of global crisis? Are we still in danger of economic and financial crisis today?

Explanation / Answer

What are reliable predictors of economic and financial crisis?

a. Weak exports, excessive import growth, and currency overvaluation can lead to deteriorations in the current account. This is often associated with currency crises in many countries.

b. External weaknesses and currency overvaluation could also add to the vulnerability of the banking sector which might lead to a recession, business failures, and a decline in the quality of loans.

c. Crisis in the Banking system could also lead to currency crises thereby leasing to financial and economic crisis.

d. Large fiscal deficits also lead to worsening in the current account position, which could put pressure on the exchange rate.

The predictive indicators could also be the Currency exchange rate, Trade balance/GDP, Foreign liabilities/foreign assets, World oil price, Foreign reserves, Stock price index, Government consumption/GDP.

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