The recent global financial crisis (2007-2009) has been considered as the most severe shock in the financial markets since the Great Depression happened in 1930s. Even though, it is considered that the worst time has passed and the world economy has been experiencing several positive signals of recovery from major countries such as the U.S, European countries along with robust growth from the BRIC countries. The on-going slow down in global economy has implicated that potential risk is not yet subsided and the reform of the world economy as a result of pubic intervention will be facing another challenging era in the coming years. In this report, we attempt to discuss the impact of global financial crisis on money market in association with the sub-prime mortgage market in the U.S. and how government intervention to regulatory framework would help the economy to weather a storm.
Part I: Introduction
Over the past few years, global economy has been hardly hit by the deepening crisis in financial markets. Starting from the U.S. where the collapse of sub-prime mortgage market has significantly weakened health conditions of financial institutions and shaken the confidence of global investors. Major advanced economies have been exposed to the risk of entering into a recession period whereas other developing and emerging markets are also slowing down. The impact of this has then rapidly spread to other markets such as money, equity and bond markets etc. As a consequence, the U.S. money market was frozen for a long period of time and at the same time the stock market was free falling. A number of major banks and financial institutions went out of business while others are struggling to survive in hope of being supported by the government.
Many efforts from the government to rescue those troubled financial institutions that were facing high possibility of bankruptcy, mostly through governmental bailouts; the financial market has unintentionally... [continues]
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