Financial Institutions

Question: Discuss about the Financial Institutions. Answer: Introduction: Global Financial Crisis The global financial crisis began in earnest in year 2007 through to 2009, the crisis struck hard and fast. It was a situation when major economies of the world suffered a slump in their economies affecting many industries. Many of the economies were shrinking while others literally collapsed (Anheier et al., 2008). Australia and the United States were not left behind in this crisis. In fact, the global financial crisis genesis bagun in the latter before its effects spread and was felt throughout the rest of the world. It took quite some time for the federal reserves of both countries, the IMF and the World Bank to come with concrete micro and macro economic policy measures to avoid further turmoil of these economies. Political goodwill was also required to be shown during the crisis. The economic crisis was largely contributed by the slowdown and the decline of the housing market in the US. This was led by the bursting of the housing bubble that was the pillar of the American economy. The housing bubble burst meant that more and more people could not afford to service their housing mortgages and could not be able to buy or sell their houses (Auernheimer, 2003). Secondly, globalization led to rapid growth of economies due to the world economy becoming a village. Everything was digital and global. The economic slump or slowdown due to globalization led to multiplicity effect that due to global linkages that led to intermingling and intertwining of global financial systems and economic systems at international levels. The United States and Australia were not left behind although the latter wasnt severely affected. Additionally, other factors compounded the global financial crisis such as; the continued terror war waged by the United States where most of the resources were directed to fighting terror. Other allied nations like the United Kingdom, France and others joined in to help fight the war on terror. Industries collapsed, financial markets dwindled and financial institutions started to close shop (Berlatsky, 2010). An example is the bankruptcy filed by the Lehman Brothers a, a big financial institution in America. This effect trickled down to other economies of the world where the United States dollar acted as the exchange currency. There was deep liquidity crisis causing an effect on global economy and even on global food crisis. The economy and finance of the United States were involved in a consumer spending spree and never seen before. Business for them was borrow, borrow and borrow, and do not worry, because getting money was getting easier and the value of homes was growing. The problem is based on the global economic crisis is adversely affecting all economic levels, triggering a devastating sequel in the financial and productive sectors, this research focuses on how it impacts in Europe and how to prevent a stroke Similar for this phenomenon. Increasing the competitiveness of businesses coupled with reduced public spending, encouraging savings and regulation of financial institutions can reduce the negative effects of the global economic crisis (Butler, 2009). Chronological sequence of the main events of the global crisis Faced with the worrying economic situation, European leaders are nervous about unsustainable debt that could affect the global economy. We start from the base, what is a loan?, a loan is a transaction whereby a financial institution makes available a certain amount of money, through a contract. We acquire a loan obligation to return the borrowed money within a period of time and pay a commission and agreed interests. One of the main functions of the International Monetary Fund (IMF) to provide cheap and affordable financing to members affected by balance of payments problems, if the country cannot obtain finances in sufficient amounts and on terms affordable to meet its international net payments. This financial assistance enables them to rebuild their reserves, currencies stabilization, and continued payment of their imports to restore conditions for strong economic growth while taking the necessary steps to correct minor problems. However, it negated its functions leading to global financial crisis. As strength of this region have the macroeconomic framework and inflation expectations, the exchange rate flexibility and its economic and democratic institutions, improving the private financial framework, its geopolitical situation or raw materials. However, it has a poor business diversification and concentration on the export of raw materials, a limited level of savings and continues to have a significant deficit of social integration. Latin America should be aware that after a "satisfactory" step by the crisis, speaks highly of what has been done so far and should be prepared for "difficult" times, where fiscal monetary margins and are running out. The economy and finance of the United States were involved in a consumer spending spree and never seen before (Mishkin and Eakins, 2009).. Business for them was borrow, borrow and borrow, and do not worry, because getting money was getting easier and the value of homes was growing. When we read news about what happens in international financial markets, changes in monetary policy in the US or when we hear news about political conflicts in distant regions, even those dedicated to financial issues is sometimes difficult to understand the implications this has on our daily lives. The financial world has globalized, creating intricate communicating vessels that generate phenomena that ultimately affect the country and people. Now imagine the effect of multiple stones and understand why predict how a particular financial variable will behave is a fairly complex task. Just to mention one of these important effect on the financial dynamics of people have, consider that following the 2008 crisis and its aftermath has been worldwide search to revive the economies of the countries issues (Scott, 2009). Actions such as buying bonds in the US or economic policy of the Australian government are explained, among others, and these have resulted in the systematic reduction of interest rates, impacting brutal way the growth capacity savings of families. Simultaneously, alternative investment instruments in most countries were not in vision or preference of savers are average, as capital markets in the world stock markets still account for large sectors, particularly levels means of income, elements of complexity and uncertainty of short-term (not always fully understood), leading in many cases to not be displayed as viable options.The financial markets were negatively affected. Most of the stocks were plummeting leading to loss of values of the listed companies. The most affected financial markets were the United States financial markets like the NYSE and the DOWJONES. The ASX was also negatively affected although not as much as the United States financial markets. Many of the companies that did poorly were in the energy and financial segments in the stock exchanges (Scarpetta, 2003). Many of the financial markets in the world were adversely affected. The world economy was in crumbles due to weakened financial markets. The Australian government reacted ensuring macro and micro-economic principles changed the situations. The Australian financial markets were The behavior of inflation is another factor that also presents today elements of complexity for analysis. Paradoxically, it seems that high inflation are easier to understand for people in their impacts and consequences bounded inflations, as we have had in the last little more than 15 years. This is partly a result of the perception that always causes that families are faced prices that fit into higher inflation levels, but they are diluted in the weighting of calculating inflation that result is significantly lower. This occurs for example with high settings and obvious price such as tuition. In our perception, and in many cases in reality, own resources available to spend are commonly depleted Whose Responsibility is it? It is the responsibility largely on complex financial institutions with which we coexist today, create better mechanisms to streamline the household savings; but also individual responsibility to try to understand, above the complex, the issues that affect the economic future of our families. Financial institutions mainly consist of banks and cooperative Saccos. These institutions were mostly at the core of the crisis. An example is the Lehman brothers a bank in America that filed for bankruptcy due to liquidity issues. The inflationary risks also contributed to the banks collapsing (Scarpetta, 2003). Major Banks like the commonwealth bank of Australia and the National Australian Bank reduced their workforce while others just shut down some of their branch networks. The expansion strategy was greatly hindered due to the global financial crisis. Many banks were declaring losses while the investors were not getting any return on investments (ROI). When the crisis worsened and the Fed decided to buy the so-called "junk shares" possessed by the banks, some economists rejected that as saying that if the government provided capital to banks and financial institutions, should ask in return a share in the ownership of those related companies that do not benefit from it who are responsible for the crisis in these institutions (Venardos, 2010).Respected academics and financiers in Australia and the world, proclaiming that we had entered a period of continuous expansion, where the profitability of companies would ever higher, their stock prices would rise steadily and credit could grow indefinitely above production. The last desperate measure taken by the US Government :It is a bitter irony: the Government has decided to buy part of the shares of banks in major problems, becoming de facto partner and shareholder of these banks. This amounts in practice to nationalization of US banks in the very seat of capitalism and the free market. How did this happen? The crisis experienced between 2007 and 2009 had an extraordinary economic strain.This was based on an unusual combination of global financial boom, strong expansion of international trade, bonanza commodity prices and high levels of worker remittances. This boom was the most notorious in nearly four decades; more precisely, from which the region experienced in the late 60s and early 70s was the decade of widespread boom, and in fact most benefited the economies of small and medium that the two largest the region, Australian and united states. In stark contrast to the patterns that had occurred since the debt crisis (and sometimes before), its social effects were also very unfavorable. Unemployment and poverty increased drastically; employment grew dynamically and quality in goods and services reduced and the levels of inequality in many countries increased. The Economic Impacts The economic effects of the global crisis have been profound, but only have been recognized (and knowing) with a lag. Projections of all multilateral organizations (World Bank, ECLAC, International Monetary Fund and the United Nations Organization) forecast on a contraction of these economies based on the global financial crisis. There are several recommendations required to curb the global financial crisis, these are;Firstly, well-structured financial regulatory measures- these regulations control the economic and financial proponents. The treasury and the Federal Reserve banks of Australia and the United States have the best economic minds to affect the micro and macro-economic policies. This will make it hard for the global financial crisis to recur if the policies are well implemented. Secondly, profound changes are required in the Bretton Woods system, imposed since 1944 by the victorious powers in World War II, with the free market model that is hopelessly exhausted. The bodies are mandated to help the economies of the world in their quest for economic liberation. The crisis experienced between 2007 and 2009 had an extraordinary economic strain, based on an unusual combination of global financial boom, strong expansion of international trade, bonanza commodity prices and high levels of worker remittances. The economic policies should be implemented to spur economic activities. The Governments should decide to buy part of the shares of banks in major problems, becoming de facto partner and shareholder of these banks. This amounts in practice to nationalization of US and Australian banks in the very seat of capitalism and the free market. In conclusion,the global financial crisis caused a disruption in major economies of the world where Australia and the United states were not left behind. In December the liquidity crisis and interbank mistrust take steps to make major central banks in a coordinated manner in order to support the US dollar. After a strong decline in the stock market, as European stock markets wobbled again, the Fed cut by 0.5 points the interbank rate, while maintaining the federal type (ie, lowers the price of money to banks, but not individual consumers), which causes the comeback of all European and North American places (Taylor and Clarida, 2011). The president of the Federal Reserve says that "conditions in financial markets have deteriorated" In order to maintain economic growth and consumption, the US government remained for years the extraordinarily low interest rates, lowering the cost of money and encouraging excessive spending by households and businesses. 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