Corporate Financial Management

Corporate Financial Management


This study focuses upon the Global Financial Crises and its impact in various global markets. There is a brief discussion on the possible causes of the crises. The crises have begun in earlier in 1930 and which is repeated some more times for crucial reasons. It is thus considered that there would not be another great recession or crises and thus several measures are being taken. In this context, the impact of GFC in various markets, like US, UK, China as well as in Asia and Australia has been analysed critically in this report.

Possible causes for financial crisis

The financial crises are the most damaging as well as the contagious or prompting calls on behalf of the swift policy those responses at the time of happenings together with it is justified with more efforts for avoiding them.  It has been seen that recessions are happened due to the deep and the long lasting recessions for the crises. In some cases, the triggered has the sharp current account of reversals. It is also known as the unsustainable macroeconomic policies due to the excessive credit booms or for the large capital inflows as well as the balance sheet fragilities are thus appeared prominently as the common patterns in cases of financial crises. It is also true that there are all the crises are not preceded with such events. In some cases of financial crises, it is considered as the contagious as well as the rapid spread for the countries which has no apparent vulnerabilities.
On the other hand, the global financial crisis is being revealed the exact requirements of rethinking at the primary level that in which way the financial systems would be regulated. It is also clear the concept of the systematic failure for the economics profession. It is the year of 1930 when the Great Depression has occurred. The causes behind it is still now a subject of debate that there are many ramifications which are clear and that including the failure of the major corporations along with the large declines in case of asset values. That values are estimation is like putting a drop within trillions of dollars range.  The substantial government intervention which is across the globe as well as the significant declinations is happened due to the economic activity. Both the cases are based on the solutions which have been proposed or that is executed for attempting to combat those causes as well as the effects of the crisis (Crotty, 2009). 
It is also found that since the year 1970’s most of the economists are involved for applying many models which includes revisions of the forecasting strategies, heterogeneous decision rules as well as the changes of the social context that drove out in cases of asset along with the other markets. Together with this, there are extensive number of researches are carried on which are generally based on various issues in case of crises as well as the analyses on the centuries-old episodes. It is also found that IMF or the International Monetary Fund is one of the resolutions of this crisis and that also mitigate the macroeconomic impact. Moreover, it has been assumed that the credit booms are however the particular characteristics which comes up with one of the most powerful predictors in case of crises on behalf of the decades. According to Alan Taylor (2011) it is also the increment of the leverages and the rapid credit growths are being observed in the same time again and again Friedman & Posner, 2011). 
The researchers are also concerned with IMF as there are documents which are the proof of cross-border financial linkages and that are intensified which will become more complex. It is the incentives as well as the other factors which leads to the financial fragility which is being able to design for better policies that includes the macro-prudential and in turn it is improved the institutional infrastructure which is strengthen the supervision. It is also reduced the incidence of crisis and as well as to realize that in long run ahead the knowledge with the tools are being combined for the necessary political will for the prevention of financial crises  (Rich, 2017). 

Meaning of GFC and analysis on it whether it is repeated

The Global Financial Crisis is considered as the traumatic incident which if it is occurred once, it would felt at least a generation. The investors already have learned many experiences and that are considered as the steps which will keep considered as the steps for regulatory changes for preventing its recurrence.  
In the below table it has been observed that the current account deficit for United states on behalf of the standpoints of macroeconomic in the years of 2000-2009. In this table, there is the current account deficit in case of United States and that is peaked as high as the six percent for the GDP in the year of 2006. It is thus the vast amount in case of importing and there is a high value of dollar which is reserved in many countries, especially in case of Japan along with China. It is the low interest rates within U.S in between 2001 and also in 2006 and the countries which are looking for the yields on behalf of the large number of accumulation of dollar and that in turn push the investment bankers in the World for creating the debt securities which will pay higher yields than the Treasuries. The result is thus found with the formation of Asset backed securities (ABS) (Pozen, 2010). 
                               Figure: Amount of Imports as well as Exports in U.S and also the current account deficit,2000-2009 Source (Pozen, 2010)
There are various steps are thus taken into consideration for which the GFC will not occur again. One of the most important steps is in that context is to handle the systematic risky institutions of SRIs. It is the regulatory focus in case of systematic risks that is being inadequate and it is not clear for further steps. One of the working definitions is that for any institution for the assets is that at least $50 billion. In case of mutual fund it is another $50billion of the assets which can be deemed for systematic risk taking situation. In case of Federal Reserve which is the regulator of all kinds of SRIs, and as well as the insurance companies. It is the FDIC or Federal Deposit Insurance Corporation has the power to grant one SRI in case of conservatorship. In case of healthy SRIs, it is thus assessed to help in case of paying the expenses incurred while the failed SRIs are thus placed in case of conservatorship which is determined as a high contentious arrangement (IMF eLibrary, 2017). 
In addition with this, another large financial institution is Volcker rule. This rule is applied for preventing the banks from the engagement of the proprietary trading. On the other hand, it is the proprietary trading is another good idea but it is not sustained. Instead of there are many risks involved in case of proprietary trading which is risky and includes hedging for an existing position so that the risk may reduce. It is also needed to be considered that the Volker rule has not been applied in the markets of United Arab Emirates, Shanghai or in London where the major banks are located for that reason; international financial centres cannot maintain those markets at all  (Anderson, 2000).
Impact of GFC in economies of various countries including Australia
In case of Australian financial market, the global financial crisis has some effects which are discussed here. It is the positive point for giving emphasise on this phenomenon is that the crisis within Australian financial markets is thus considered as less than the many other countries. It is also said that there are markets within Australia which are significantly affected in some instances. According to RBA, the risk premia is thus excessively low after the year of 2007. It is because that in case of prolonged period for economic stability there are number of major countries which are dating back in early 1990s and that caused the investors in becoming more optimistic for the near future. Another reason is that it is the low interest rates which are prevailed for the earlier part in the decade that caused with investors for searching the higher yields with the new as well as less well understood products.
It is also a observational point that there are minimal exposures in the securities of Australian financial institutions as well as the other financial institutions contains a solid balanced sheets as per the documentation of FSR and thus it is considerable point that there would be less concern of the counterparty risk in case of local markets  (Withers, 2017). 
The above figure thus indicates the largest falls in Australian market and that is generally outperformed with other markets return in those earlier years when United States as well as the European stock markets is being fallen back at the levels from the middle level of 1990. Again in 2003, the market is returned back. In this context, it is also observed that in case of Japanese markets, there is a level back in 2003 from the low level in 1984  (Hunter, 2017).
It is also observed that the financial crisis in Australia is due to the initial development of credit market. It is a long period to catch the credit market by the equity market which is at least the second half of the year of 2007. In Australia, the spread difference, in between the bank borrowing costs as the particular maturity as well as the policy rate which is expected within the marker in the same horizon. 
On the other hand, the Reserve Bank of Australia has responded with the resultant increment in case of precautionary demand in case of cash through the financial institutions for increasing the supply cash within the system. It is thus measured by the exchange settlement (ES) balances (Terazi & Senel, 2010). 
It is thus the initial rise of spreads in Australia and that is less than US, UK as well as Europe when the counterparty risk has been considered further checking. It is also checked that, throuhout the crisis period, it is very low in amount for the money market which is being spead within Australia in other markets  (Sheng, 2009).
Moreover, the bank is also able to reduce the supply for ES balances that is back wit a large amount. In the year of 2008, in case of corporate issuance in United states is being at the higher level whereas in Australia after the year 2007, the banks those are involved in bod issuance are directly affected due to the Global Crises.
Again, if it is related with the Asian or Chinese market, it is assumed that there are a great impact on the manufacturing sectors for the Global Financial Crisis (GFC). 34 percent of the economy in China is coming from Manufacturing accounts thus it has been observed there is a greatest impact of GFC on the automotive industry particularly in the regional areas which are recorded at the highest rate in case of job losses  (Commonwealth of Australia, 2010). 
There is the other market like European market which is also affected very crucially under the Global Financial Crisis. This GFC has shaken the financial system and the banks are thus interested to withdraw from the foreign markets to cut down the losses. In this context, HSBC has been found that they have withdrawn from US retail market in the year of 2011. In another case, it has been found that financial turmoil as well as the fiscal austerity of public opinion has been turned out against the globalisation and also in case of economic integration. Also the pressure on public has led to more event of protectionism that is depending on the legal measurements (Choudhry, et al., 2014).

Conclusions and Recommendations

Therefore, from the above discussion, it is concluded that there are various impact of GFC on the global market and for which the individual markets are affected with various ways different from one another. In case of US economy, it is more concerned with the recovery of loan securitization as well as the government acts directly upon the financial market while it stops the bailing out in many banks for developing a consistent rationale with handling the problem. Moreover, the US market is the largest financial institution where the capital requirements must not be increased but to resume the crisis it is needed to be redesigned. On the other hand, in case of Australian market, those local markets are being disrupted during the GFC and the degree of the dislocation in most of the cases is considered as less significance than the other countries. It is also recommended that the restoration of the confidence among the various financial entities is thus a necessary step which is considered as the road to global recovery. 

Reference List

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