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THE GLOBAL FINANCIAL CRISIS

Prepared by:

 Amghar Redwan

 Amghar Khalid Abidi Abdelmajid

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THE OUTLINE OF THE

PRESENTATION What is a financial crisis ?

What are the main causes of the current financial crisis?

The crisis of credit(banking crisis) visualized(video)

What is the impact of the financial crisis on the world economy?

impact on the united state economy

impact on other developed countries and emerging economies

impact on developing economies

Effect on global output growth .

financial crisis and trade

The impact of the financial crisis on commodity prices and the poor What are the possible solutions for the financial crisis?

financial stability plans

How to avoid banking crisis in the future?

Features of the financial crisis (pictures)

Sources

Conclusion

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What is a financial crisis ?

 A sudden drop in the value (price) of one or more of the assets.

 Asset is something of value that aperson or a company owns.

 Asset can be either physical capital

(machinery, equipment or buildings)or financial assets (stocks and savingsaccount.etc.

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TYBES OF FINANCIAL CRISES: Financial crisis may take the form of a

sudden collapse in: The stock market.

The currency of a state.

The real estate market.

 A group of financial institutions.

then to extend to the rest of economy.

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What led to the current 

financial crisis ? The current global financial crisis was

triggered by the sub-prime mortgagecrisis in the US.

sub-prime refers, here, to a borrowerthat is not prime. This borrower who

might be less likely to repay a loan.Because of :

Bad credit.

Low income or poor.

Large loans relative to the securing proberty.

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HOW THAT HAPPENED???? Globally, companies and individuals have an

ever increasing demand for capital for both

personal and corporate investments. Traditionally, banks have been very

conservative and stringent in theirrequirements.

Banks have financed their mortgage lending throughthe deposits they receive from their customers. Thishas limited the amount of mortgage lending theycould do.

This makes access to finance difficult for the majority

of the people.

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HOW THAT HAPPENED???? In recent years, banks have moved

to a new model where they sell themortgages to the investment bank.

This has made it much easier

to fund additional borrowingto sub-prime borrowers .

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HOW THAT HAPPENED???? Relaxation of lending terms for mortgages

was as a result of the boom in the housing

sector. Millions of Americans with poor credit history

who might not have bought their homes weregranted sub-prime mortgages.

This led to the growing of the mortgage bondmarket as mortgage brokers focused on lessthan ideal clients.

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HOW THAT HAPPENED???? This proved to be very profitable as banks

earned a fee for each mortgage sold and

urged brokers to sell more and more.

The sub-prime mortgages, referred to as Adjustable Rate Mortgages (ARM) had a

fixed payment for two years. Then reset to higher (double the interest 

rate) rate sand became more expensivefor the people to repay.

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HOW THAT HAPPENED???? millions of Americans are having their

homes repossessed due to failure to

repay the mortgages.

House prices which have been falling at an annual rate of 4.5 percent in the

past 3 years and are expected to fall byat least 10 percent in 2008.

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The crisis of credit (banking crisis)

visualized

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The impact of the financial

crisis on the world economy: impact on the united state

economy impact on other developedcountries and emerging

economies

impact on developing

economies

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Impact on the united state

economy: The banking industry has collapsed

because of the sub-prime mortgages.

 As a result banks lost confidence incustomers.

The slow down in the building industryaffected other industries negatively.

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Impact on the united

state economy: Car industry has collapsed too because of the

decreasing of purchase power of the american

people. GENERAL MOTORS and FORD fleed from bankrupcy

tanks to the governmental support.

 A large number of employees left thier jobs becauseof this situation.

LEHMEN BROTHERS: Ranked among the world's topinvestment banks. The sub-prime crisis with thedecline in value of housing forced the company totake huge write downs on the value of those assets

and led to the loss of about US$14 billion.

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IMPACT ON EMERGING

ECONOMIES The emerging economies have to a

great extent remained resilient to the

global financial turmoil.

However the strong growth in theseeconomies has been affected by the

global down turn in economic activity,hence growth is expected to moderate.

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IMPACT ON OTHER DEVELOPED

COUNTRIES

Financial markets in the developedworld have been adversely affected by

the financial crisis.This has weakenedgrowth in these economies.

IMF projections show that by end of 

2008 and early 2009 most developedeconomies will be on the verge of arecession if not in a recession.

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IMPACT ON DEVELOPING

ECONOMIES: The impact would be felt in the real

economy as a result of reduced demand

for imports.

Banks in the developing economies will

likely see their credit lines from foreignbanks squeezed and the increasingfinancial flows that these economies havebeen experiencing are going to dry up.

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Effect on global output growth

- There is global

slow down ineconomic growth.

-Reduced demandhas led to price

deflations inother countries

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financial crisis and trade Credit shortages reduce imports and may under certain

circumstances, render trade financing more difficult.

Declining growth reduces trading opportunities whileraising competitive pressure

Devaluation and international financial support canstimulate trade

Reduced demand for imports may affect prices

Declining world output also depresses world trade.

Financial crisis possess risks on trade payments

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What are the possible solutions for

the financial crisis?

Financial stability plans:

The US$700 billion bailout package has given hope tothe US economy

The British government has set aside £500 billion forhuge injections of liquidity into the banking system

Other EU countries, have put aside over US$2.3trillion in guarantees and other emergency measuresto save the banking system

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What are the possible solutions for the

financial crisis?

How to avoid banking crisis in the future?

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What are the possible solutions

for the financial crisis? Islamic financial system may have a

role through providing the system of 

balance and the idea of morality to theglobal financial system.

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Sources UNESCO: The Impact of the Global Economic 

Crisis 

GE Asset Management: Causes, Effects,Policies, Reforms, and Investment Strategies 

The World Bank: Graphs 

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