Global Crisis

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University of Zimbabwe
FACULTY OF COMMERCE

DEPARTMENT OF BUSINESS STUDIES

Assignment question

Is FINANCIAL AND SUPERVISORY REGULATORY SYSTEM IN ZIMBABWE STILL APPROPRIATE

By

Edmore Mukushwa r095739q

Honours IN Bachelors BUSINESS STUDIES degree

Finance & BANKING

Course: CORPORATE BANKING (BSFM 404)

Lecture:Mr NHAVIRA

ABSTRACT

The period 2007-2009 etched a bleak abyss on the global financial landscape[1]. What started as financial engineering and cosmetic accounting in Lehman Brother’s Investments Department mutated into a cataclysm that deluged first the US economy and ultimately the global financial system.[2] Scholars, analysts and critics stood unsuspecting as what they all presumed to be just flimsy and ephemeral difficulties in the subprime mortgage market nichodemously manifested into devastating world financial crisis.[3] Whilst there is a considerably unquestionable unanimity as to the globalness of the 2007-2009 financial crises there exists a worrisome divergence of opinion and perception as to what really generated the crisis, what were the true costs and what were the optimal policy options to be adopted to salvage economies from the world financial albatross of 2007-2009. Cognizant to this paramount reflection, this masterpiece is dedicated to recounting the causes of 2007-2009 financial crises, qualifying its global consequences and examining how the plethora of problems resultant had to be addressed especially by the Bank of International Settlements (BIS). The author will employ use of various models ranging from global vector auto-regression models (GVAR), causality tests and the correlation analysis to investigate the effects of this crisis on the domestic and global economy.

Key words. subprime mortgage market, financial engineering, world financial crisis.

1. INTRODUCTION……………………………………………………………...5 0. Background of the study and problem statement……………………………..............................5 1. Research Objectives……………………………………………………………………………………………5 2. Research Questions……………………………………………………………………………………………6 3. Significance and justificationof the study…………………………………………………………6 4. Organisation of the study…………………………………………………………………………………7 2. LITERATURE REVIEW……………………………………………………..8 0. Interbank market overview; defination, operations or products, players and policy framework-supervision, control, and legisaltion……………………………………………….8 1. Interbank liquidity; Causes and effects……………………………………………………………..9 2. Central bank intervention; approaches and their consequences; A perspective from regional and international experiences………………………………………………………………10 3. RESEARCH DESIGN METHODOLOGY........................................11 4. FINDINGS………………………………………………………………………13 0. Zimbabwe’s interbank market: Anatomy of state affairs………………………………………13 1. The illiquidity headache; Disection of causes and consequences of the problem…14 2. Central bank intervention; Scope, assessment and policy recommendations………15 3. The paradox of interventionist approaches………………………………………………………17 5. CONCLUSION…………………………………………………………………19

"The crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.”[4] Financial Crisis Inquiry Commission January 2011

1. Introduction...
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