Question

( all answers combined must be in 500 words or less )

It is said that economic crises (such as the economic recession) can be expected through the performance of financial markets in the period prior to them.

1A-) What is meant by that?

2A-) What is your personal opinion?

3A-) Using the graph, explain what is meant by the Yield Curve and the forms it takes?

4A-) By checking at it, do you think that this curve can be used as a future indicator for the performance of the economy?

( all answers combined must be in 500 words or less )

Answer 1

The recession can be predicted through the performance of the financial market during the previous periods. If the stock market is not performing good continously for a long time, it will affect the business operations of the company. So if the financial market is not performing well, customers will spend less. This will ultimately affect the growth of the company. If the growth of the company is less it will reflect on the share price of company. So if share price is less that will have significant impact on the market capitalization of the company.  

Thus economic recession can lead to collapse of the several companies. It is also called bear markets. At this time consumer spending and investments will be minimal.

Yield curve means the curve visualizing the relation between the interest rates and tenure of maturity of the debt for a given borrower in a particular currency.

During recession, the yield curve is usually inverted. So it will be steeping downwards.