The financial crisis of 2007 through 2010 was not limited to the United States. The ABCPs and CDOs were purchased internationally by both institutional and individual investors. There were similar devastating results, with foreign bank failures and declining stock values. As well there was a "De-Leveraging" of foreign financial institutions, as assets needed to be sold "liquidated" to cover debt maturity dates because the credit markets were frozen. At the same time a "currency crisis" was building, as investors were transferring huge amounts of capital into preceived "safer" currencies such as the Yen, Swiss Franc and the U.S. Dollar. This had significant effect to emerging countries, who had to go to the international monetary fund for assistance. Is a country always worse off when its currency is weakened (falls in value)? During the flight to safety experienced at the end of 2008 the U.S. Dollar gained in value against the Euro and the British Pound. What effects did this have on the U.S. Economy? Did the consistent lowering of the Federal Funds Rate Target during 2007 & 2008 have an effect on the exchange value of the U.S. Dollar?

The financial crisis of 2007 through 2010 was not limited to the United States. The ABCPs and CDOs were purchased internationally by both institutional and individual investors. There were similar devastating results, with foreign bank failures and declining stock values. As well there was a "De-Leveraging" of foreign financial institutions, as assets needed to be sold "liquidated" to cover debt maturity dates because the credit markets were frozen. At the same time a "currency crisis" was building, as investors were transferring huge amounts of capital into preceived "safer" currencies such as the Yen, Swiss Franc and the U.S. Dollar. This had significant effect to emerging countries, who had to go to the international monetary fund for assistance. Is a country always worse off when its currency is weakened (falls in value)? During the flight to safety experienced at the end of 2008 the U.S. Dollar gained in value against the Euro and the British Pound. What effects did this have on the U.S. Economy? Did the consistent lowering of the Federal Funds Rate Target during 2007 & 2008 have an effect on the exchange value of the U.S. Dollar?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Two institutions that were developed to provide banking stability in the United States after the great depression are FDIC insurance and efficient market hypothesis derivatives markets and the efficient market hypothesis FDIC insurance and a lender of last resort open capital markets and a nationalized banking industry While capital outflow might arise from desire to avoid falling domestic asset values, speculative attack is motivated by profiting from expected depreciation of the currency profiting from rising domestic asset values private sector attempts to stabilize the economy when government institutions fail racism against emerging markets Bank runs are still a common problem in the United States True False Contagion of crises can stem from both trade and financial linkages True False The international community lacks a reliable lender of last resort True False
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