Global Finance Crisis

PRESENTATION OUTLINE Meaning of Global Finance Crisis Over view of Global Finance crisis Consequences - U.S.A - UK - India

GLOBAL FINANCE CRISIS The global financial crisis of 2008 is the worst of its kind since the Great Depression Began with failures of large financial institutions in the United States Morgan Stanley, Goldman Sachs, Merrill Lynch Deutsche Bank,Barclays. Rapidly evolved into a global crisis resulting in a number of European bank failures

MEANING OF GLOBAL FINANCIAL CRISIS The term financial crisis is applied broadly to a variety of situations Usually, some financial institutions or assets suddenly lose a large part of their value – Banking Panics (and recessions) – Stock market crashes – Bursting of financial bubbles And biggest organizations

Created by Robin Thieu, 2008 Fall

Banking Panics (and recessions) Commercial banks suffer a sudden rush of with drywalls by depositors, this is called a bank run September 7, 2008: Two United States Government sponsored enterprises (GSEs), Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), into conservator ship run by FHFA September 14, 2008 Lehman Brothers files for bankruptcy. Sale of Merrill Lynch to Bank of America September 16, 2008 AIG faces severe liquidity crunch Financial institutions lost a large part of their value incoming days and weeks

1 year ago RBS paid $100 billion for ABN Amro. For this amount it could now buy: Citibank $22.5 billion Morgan Stanley $10.5 billion Goldman Sachs $21 billion Merrill Lynch $12.3 billion Deutsche Bank $13 billion Barclays $12.7 billion And still have $8 billion change......with which it would be able to pick up GM, Ford, Chrysler and the Honda F1 Team. WHAT`S HAPPENING IN RECENT YEAR

IMMEDIATE EFFECTS OF CURRENT CRISIS IN THE “ UK’’ Unemployment increased by 164,000 between May and August 2008; almost a 10 % rise from 1.63 million Most hard hit is London where number of jobless looking for jobs increased by 42 % in September 2008 Some estimates put 1.5 million additional unemployment generated by end-2010 leading to an unemployment rate of 10% from current 5.7 %.

IMMEDİATE EFFECTS OF CURRENT CRİSIS IN THE “ USA’’ Slowdown in GDP – Current 2008 projection 1.6 % (down from 2.8 % projection in April 2007) – 2009 projection: 0.06 % – Consumer confidence lowest since 1978 October 2008 consumer sentiment index: 57.5 from 70.3 in September Construction activity much worse: Q208 new constructions starts are 40 % less than post 9/11 (Q401)

IN INDIAN……………………………………………..?? STOCK MARKET DOWN INDIAN CURRENCY VALUE 1$=49.89 IT PROJECTS INFLATION RATE [HIGHEST IS 12.6%] GDP TOWARDS DOWN INCREASING FUEL, METAL AND FMCG GOODS

12 India: Vibrant Capital Market India is among the major destinations across the globe for inflow of US Dollar Sensex has risen 20 times in the period Sensex – The Bombay Stock Exchange index rise 20 times from 1990s to reach 20,000 mark in November FIIs have infused large investments into the Indian stock market Encouraging industry performance Increased local investors’ confidence Emergence of industry and confidence of local investors along with the FIIs has led to upsurge of the Sen sex

13 India: Fastest Growing Free Market Democracy GDP GrowthForexFII FlowFDIPer CapitaInflation % < USD 1 billionUSD 1 million (1993) USD 97 millionUSD % 2008*8.7 % USD 309 billion as on Mar 28, 2008 USD 16.1 billion in USD 12.7 billion in till December (USD 16 billion in ) USD %as on JAN 15, 2009 Source: Times of India, RBI, DIPP, Indian Budget, RediffTimes of IndiaRBIDIPPIndian BudgetRediff * Annualized data used to show comparison with 1990

INDIAN ECONOMY INDICATORS BANK RATE 6.0% REPO RATE 6.5% REVERSE REPO RATE 5.0% CASH RESERVE RATIO 5.5% STATUTORY LIQUIDITY RATIO[SLR] 24% PRIME LENDING RATE 12.5% SAVINGS BANK RATE 3.5% AND GDP 7.5% INFLATION 6.4%