Question

1.   What is an international financial crisis, and what are the two main causes?

2.   Why are crises associated with severe recessions? Specifically, what happens during an international financial crisis to create a recession in the affected country or countries?

Answer 1

The situation at which any financial assets unexpectedly lose a large part of it's nominal value, the financial crisis will occurs. The major two causes of the financial crisis that occurred in the 19th and early 20th century are : Banking Panics and many Recessions coexist with these panics. The other causes of financial crisis includes : currency crisis, bursting,etc. The financial crisis of 2007-2008 is said to be the global crisis. A country always maintain a fixed exchange rate. The country suddenly forced to devalue it's currency because of unsustainable currency deficit lead to financial crisis.

The period of a general economic decline remarked in world market during the late 2000s and early 2010s was the period of Recession. Country to country the timing and scale of recession will changes. As a part of the financial crisis happened from 2007-2008, resulted in the crumble of the US-real estate market . This derived to a great recession there. The great recession brought lack of precious assets in market economy and also the collapse of banks in world economy.

The recession affect by the countrys across the world is not at the same level. The world's developed economies like Europe and North America suffering high impact of recession while the countries like India and China suffers only less impact of recession.