1. What was the Global Financial Crisis, how did it come about and where were its major effects.
The Global Financial Crisis of 2007 was triggered by liquidity shortfall in the United States Banking system which soon spread to affect the global economy. This has resulted in the collapse of large financial institutions, the bailout of banks by national governments and downturns in stock markets around the world. In various ways, the housing market had also suffered substantially, resulting in numerous evictions and prolong vacancies. It began in the following months of August 2007 with the subprime crisis which were brought on by low interest rates. Global financial markets experienced periods of extraordinary uncertainty. Low interests made money cheap, allowing financial institutions to lend to home buyers who have bad credit history. These types of loans had low interest rates for the first few years and then a much higher variable interest rate for the rest of the loan. The amount of American housing that was mortgaged accumulated considerably, and when the interest rates began to raise, the demand for these American housing had slowed. This led to the borrowers being unable to make their loan repayments resulting in significant losses to American banks and international banks, which then gradually affected the global financial market.
What had caused the wide-spread of the financial crisis was the difficulty in identifying just which investments carried what level of risk. Credit rating agencies had not evaluated the risks of these products accurately causing a global credit crisis as lenders became unwillingly to lend for any purpose that carried even the slightest level of risk. Interest rates increased and various major financial institutions collapsed because they could not renew the loans needed to run their business. As financial sentiment depreciated manifestly, access to credit globally became increasingly difficult and expensive, causing consumer...