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Financial Crisis Essay

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The term ‘financial’ means money or money related resources and the term ‘crisis’ means deterioration or disaster or emergency so the financial crisis means the rapid deterioration of financial indicators such as asset prices and short-term interest rates which becomes the cause of financial disaster. It is also defined as the sudden change in stock rates in the financial markets. An example of financial crisis is stock market crash (Feldstein 1991, p. 1–2).

The reason for financial crisis is not the huge investments made by the business leaders in the venture related activities which fail and do not bring any profitable outcome but the reason is the sweeping of numerous market participants in the heavy risk-involved dealings for the same venture for profitable means. This can be in the form of thrifts lending, bank lending or share investments in the stock market. NBER study classifies the financial crisis into three major components:

1. Domestic capital related financial crisis 2. Economic and financial crisis through international origin and transmission 3. Financial crisis transition through economic collapse Thus, the overall reasons for financial crisis arises through the excessive involvements and investments of financial resources (money, assets, properties) in the stock market for increasing the number of shares in the interest of venture.

Other reasons are the unintentional means which too arises from the market through the declining rates in short-term interest and assets prices which ruin the financial resources of a developed company and finally become the reason of ‘financial crisis’ (Feldstein 1991, p. 2–3). References Feldstein, M. (1991), The Risk of Economic Crisis, Chicago, The University of Chicago Press.

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