Multinational bank and the global financial - Myassignmenthelp.Com

Question: Discuss about The determinant of vulnerability to global. Answer: Introduction: The aim of the assignments is to evaluate the overall impact of financial crisis on companys performance and country's economic condition. The assessment mainly identifies the overall causes of financial crisis, which led to the decline of world financial market. In addition, assessment also aims in identifying the possibility of another global financial crisis with could incur in future. Moreover, the impact of financial crisis on the economic condition of Australia also analyzed, which could help in identifying the problems faced by Australian companies. Furthermore, the relative measures taken by the Australian government for curbing the overall financial crisis is also depicted in the assessment. Discussing the possible causes of the financial crises: There were many factors which could be identified as be possible cause for the rise of the financial crisis. These factors are depicted as follows which paved the way for financial crisis. Increment in interest rate: The rise in interest rates was one of the main factors that led to the rise of 2007 financial crisis. The rising interest rates directly increased the overall payments that were conducted on mortgages, which in turn increased installment value of the borrower. This increment in the overall interest payment lead to mass defaulting of borrowers due to unavailability of relevant income to support the expenses. Previously the overall interest rates maintained by FED was low as compared to the industry during the financial crisis. The interest rate during the financial crisis mainly rose to the levels of 5.25%, which was substantially high and increased default rate from borrows (Armantier et al. 2015). This high default rate from mortgage borrowers directly reduced credit rating of the mortgage Bond held by Financial Institutions. They were not able to acquire the required level of payments from there borrowers, which in turn hampered the capability to smoothly conduct the operations. Increment in securitization of funds: The second major factor which boosted the rise of financial crisis was the securitization funds that was conducted by Financial Institutions. In addition, the use of mortgage backed securities and credit default swaps securities was used by the financial institution to convert bank loans into mortgage bonds, which was then resold in the financial market. The provision that was provided to Financial Institutions to convert their loans into one mortgage bond, which was rated by credit agencies. Companies were buying the Mortgage bonds such as MBS and CDS, as AIG Insurance Company supported them. The use of credit default swaps was mainly helpful to bank in generating adequate capital for supporting more loans. problems related to securitization mainly increased when credit rating on mortgage bonds work fixed by banks, which led to the accumulation of junk securities in portfolios of organization (Benetrix, Lane and Shambaugh 2015). Therefore, the start of default rate by borrowers decl ined value of assets and revenue generation capacity of companies, which led to the augmentation of financial crisis. Deregulation of different laws: The deregulation of different laws in US mainly reduced the restrictions on banks, which led to the unethical measures conducted by financial institution to support their profit goals. The deregulation of Glass Steagall Act of 1933 and Commodity Future Modernization Act mainly led to the foundation of the financial crisis. These deregulations directly reduced control on banks who accumulated high risk assets and raise their risk to reward ratio (Drydakis 2015). Now the banks were accumulating high risk assets, which they eventually traded in capital market to acquire additional funds to increase their profitability. The deregulations conducted by the US government mainly allowed Financial Institutions and banks in US to accumulate high debt, which could be seen during the financial crisis. Increment in growth of subprime mortgages: The last factor that could be identified as the overall measure, which led to the rise of financial crisis, where the incremental subprime mortgages. Due to the regulations of US, government banks were able to eliminate the read lines in poor neighborhood and provide loans to everyone in US. The enforcement of financial institution Reform recovery and enforcement act directly reduced overall regulation on US banks. Bank such as Fannie Mae and Freddie Mac were mainly responsible for converting the bank loans into mortgage bonds, which were then sold in secondary market. This adequate increment in ability of the banks to raise funds to support their operations without attaching with relevant risk directly increased operational capability of US banks (Feldkircher 2014). The banks were able to accumulate loan, which were then transferred to Fannie Mae and Freddie Mac, who are responsible to convert these loans into mortgage bonds and sell them in secondary market by providing the bank wi th additional capital to support the financial activities Identifying possibility in the second occurrence of GFC: There is a possibility that the Great Financial Crisis incurred during 2007 could occur or repeat itself again in future. This statement is mainly concluded after seeing the overall problems incurring all around the world. The measures that was used by US and other countries to control the great financial crisis was not adequate, as the actual problem was not controlled by the government (Floyd, Li and Skinner 2015). This could eventually result in future problems that might incur in financial sector of the world. After 2012 small recessions could be seen during 2013 and 2016, which was led by low financial capability of developed countries in controlling their debt. The 2012 recession was mainly conducted, due to the weak measures taken by government for controlling recession in 2008. Whereas. the 2016 recession came due to the debt obligation of Greece, as they were going to default in their payment. Reducing oil prices: The second factor that could be identified as the declining oil prices all around the world, which is relatively due to reduce demand from manufacturing and production companies. previously the amount of oil usage in manufacturing and production sector was immensely high. which was driving maximum of the world economy (Goh et al. 2015). However, declining oil prices is substantially worsening the problems of oil producing countries, which is reducing the ability to generate adequate cash flow to support the activities. this could eventually increase the chance of default by many countries on their debt payments due to reduction in their profits. Problems in Chinese economy: From the evaluation of different news, it is assumed that Chinese economy has been declining over the past few years due to slow growth in manufacturing. Chinese government is involved in inflating there share market by continuously forcing investors to increase value of the shares (Haas and Lelyveld 2014). This trend as assumed by different economics and analyst is relatively to end due to the pressure from external forces such as global market. This would eventually argument second financial crisis, which would engulf financial sector of the whole world. High increment in debt accumulation by countries: Third factor that is the pricing that accumulation conducted by countries such as Greece and other developed Nations. these countries are mainly increasing the debt accumulation to support their capital expenditure, while the actual income is relatively low in comparison to the expenses incurred each fiscal year. The debt accumulation of USA is relatively higher then maximum of the countries all around the world,if the government is not able to pay the debt then a second session could start and trigger financial meltdown of the hold world (Helleiner 2014). Depicting the impact of GFC on other countries and in Australia: The great financial crisis had negative impact on many countries all around the world, as it affected financial capability of US banks to drive growth. United States is mainly considered to be one of the major importers of good all around the world and the rise of the financial crisis from US mainly impacted the entire financial sector of the world (Lahmiri 2015). The financial crisis had impact on both developed and developing countries similarly, as the financial sector liquidated due to low credit availability. The impact of financial crisis on the economy of different countries are depicted as follows. Problems reason in developing countries from financial crisis: Developing countries mainly rely on Foreign direct investments that is provided by developed countries. The reduction in financial capability of developed countries due to lack of adequate capital provided by banks. This lead to mass selling in developing countries where foreign direct investments were conducted, as investors from developed countries needed capital to ensure their continuity (Luchtenberg and Vu 2015). This mass selling mainly hampered performance of the capital market, which in turn reduced growth prospects for developing countries. Problems faced by developed countries: Banks present in developed countries mainly had investments in mortgage bonds, which was portrayed by US banks. This excess exposure to in US mortgage Bond mainly increased losses of these banks in developed countries, which in turn declined their Financial condition. Developed countries due to free trade policies were greatly impacted by the fall of major companies in US, which were interrelated to their import and export system (Nelson and Katzenstein 2014). Economics developed countries are interrelated, which directly affected financial capability of companies and negatively resulted on the capital market. Impact of financial crises on Australia: The financial crisis mainly hampered economic condition of all the countries around the world, among which Australia is also listed. Australian economy during the financial crisis took a deep steep, which directly resulted in liquidation and closing of major firms. Companies were mainly not able to generate higher returns due to the excessive selling pressure portrayed by investors. Companies in Australia mainly lost control over their debt accumulation, which declined actual share value of the company. Many jobs in Australia were lost due to the augmentation of financial crisis, as companies were not able to survive during the credit stagnation period. Australian companies such as BHP Billiton, Woolworths, we farmers and other branded companies faced losses during the financial crisis (Pianeselli and Zaghini 2014). This negatively impacted the overall capital market of Australia, which further hampered progress of small and medium companies. Many small and medium company owners were forced to liquidate due to cash stagnation in the financial sector. Depicting the proposed reforms used in controlling the financial crisis: Adequate reforms were actually presented during the financial crisis which help in reducing the negative impact of the crisis. Relevant acts and preventions were conducted by the US government, which was followed by maximum of the countries all around the world. The financial injection was inputted by the government in their economy to boost their financial sector and improve credit abilities of banks (Rajmil et al. 2018). Taxpayers money was used to fuel the economy once more, as it helped in improving the financial position of Companies. The US government mainly used Housing and Economic Recovery Act 2008 for reducing the negative impact of financial crisis, where $300 billion worth mortgage was insured. This insurance was mainly provided by the US government with the help of FHFB, OFHEO and GSEs, which help in reducing the negative impact of the financial crisis. The insurance conducted by the US government mainly helped in stabilizing the housing sector, which was collapsing due to unstable payments (Reddy et al. 2014). Control on lending practices was so implemented by the US government, which helped in reducing the risk accumulation that was conducted by banks and Financial Institutions. The regulation mainly aims and impacting the overall lending practices of banks and Financial Institutions, which was the main reason behind the rise of financial crisis. Adequate measures were taken by the Federal Reserves, as the first step towards financial crisis was created by them (Treeck 2014). The increment in interest rates conducted by FED was the main reason behind the default in mortgage bonds. Hence, for curbing the financial crisis FED directly reduced interest rates and provided adequate credit to the Financial Institutions. Conclusion: The assessment is mainly focused on identifying the overall impact of financial crisis on economic condition of different countries. Financial crisis evaluation is conducted adequately in the current assessment, which could help in identifying relevant factors which led to the rise of the crisis. 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