Financial Crises Presentation PowerPoint Example | Topics and Well Written Essays - 2500 words

Financial Crises - PowerPoint Presentation Example The purpose of this study is to explain the main types and causes of crises in financial markets and analyse the responses (such as quantitative easing QE) to them by the governments. The types of financial crisis can be primarily classified into banking crisis, international financial crisis, wider economic crises, and speculative bubbles and crashes. Crisis in banks occur due to sudden withdrawals by depositors probably due to unexpected panic looming over the market. The basic business model in any bank will reveal that the main earnings of the bank are generated from the difference between interest earned from investment in profitable projects and the interest paid on deposits. As the banks lend out the majority portion of cash they receive on deposits in avenues of optimum investment, any sudden demand for pull back of money by the depositors will make the bank insolvent because of the fact that no banking organisation has the liquidity to repay their demand and time deposits at the same time. This causes some customers to lose their money on deposits and the panic quickly spreads over the market causing depositors in other banks to pullout money from banks. This creates a cyclical chain reaction in the financial markets that adversely affects investor sentiments and thereby creating banking financial crisis. This phenomenon is also called the ‘bank run’. Example of such banking financial crises or bank run includes the Northern Rock bank run in 2007 and the legendary run on banks of United States in the year 1931. International financial crises occurs when a country that previously maintained fixed exchange rate regime is abruptly forced to adopt floating rate system. This generally requires devaluation of currency due to market speculation. This type of crisis is also known as the balance of payment crisis or the currency crisis. The origin of the crisis lies with the difference in relative exchange rate between the