Describe the role of management / regulators?
After the boom years of rapid growth, the economy of Iceland turns to bad in 2008 and nearly collapse after the collapsed of Lehman Brothers. These events correlated with international development where the booming economies followed by the financial crisis.
The Iceland financial regulator (FME) is playing a vital role in preventing the crisis. They need to make sure that the management is doing their job well. Besides that, they must confirm that the information they grabbed is reliable. Too, make sure that there is enough risk awareness especially for financial aspect in the country.
Then, the FME also need to cope the crisis in realistic. Overall, they need to make sure the limited fund is wisely spent. Firstly, government operation and projects will be given priority to develop. Next, several tools used to help in decision making. For instance, cost benefit and cost-effectiveness analysis are the method used to limit the expenses and make sure it is wisely spent. Then, FME must always report on the progress like pointing out which parts of the projects need to be adjusted. All these are the responsibilities of FME to monitor the crisis that Iceland suffered. Describe events leading up to the losses and risk incurred and mitigating process described.
For the events that led up to the losses in the case of Iceland are the Icelandic businesses and banks mainly focused on the abroad investment. Besides that, the financial market of Iceland has been deregulated in the 1990s after it joined the European Economic Area. Huge government sponsored investment such as hydro-energy and aluminum smelting plants were launched in 2000s too contributed to the event of losses in Iceland. Similarly, housing loan system too being affected, as a result, loan-to value ratio and competition become more challenging. In real, the price for real estate doubled within 5-year. Lastly, the shortage of work force met the foreign...
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