Global financial crisisis an economic situation where both markets and consumer faces difficulty inbusiness environment since capable consumer tends to reduce the purchase ofgoods and services until the economic situation improves.

Financial crises can causemassive loss in income, unemployment and output loss. In the history of mankindthere are 5 major financial crises faced by the world namely The Credit Crisisof 1772, The Great Depression of 1929-39, The OPEC Oil Price Shock 0f 1973, TheAsian Crisis of 1997 and The Financial Crisis of 2007-08. Among these fivemajor financial crises the two most devastating financial crises are The GreatDepression of 1929-39 and The Financial Crisis of 2007- 2008.

The GreatDepression of the 20th century lasted 10 years and believed to betriggered by the fall of wall street in 1929 and the bad policy of U.S.government.

Great depression resulted in huge loss of income, highestunemployment rate recorded of 25 percent in 1933 and highly affected theindustrial sectors. The Financial Crisis of 2007-08 was said to be the mostdevastating global financial crises after the Great Depression. It caused thedownfall of many financial markets all around the world.

It was caused by thecollapse of housing sector in the U.S., the crisis caused the fall of one ofthe biggest investment banks in the world of Lehman Brothers, it brought manyfinancial institutions to the edge. The financial crisis of 2007-8 almost tooka decade to recover. (ENCYCLOPEADIABRITANNICA, 2018) Financial Crisis is asituation when the price of the assets suddenly decreases causing an impact infinancial markets and disturbing markets capacity of collecting capital. Thereare varied types of situation that can cause a financial crisis.

(SSRN,2013) The most common reason for afinancial crisis are banking crisis, currency crisis, speculative bubbles andcrashes, and wider economic crisis. Banking crisis also known as Bank panic isa situation of bank run i.e. a problem faced by the bank when there are suddenwithdrawals by customers. Since bank lends most of the deposit and with thesudden withdrawal by depositors, bank cannot quickly return the sudden demandcausing the customer to lose their deposit which also cannot be recovered bythe banking insurance. The widespread if bank run can cause the financialinstability worldwide.  A currency crisisis a situation caused when the fixed exchange rate of country breakdowns orwhen the currency goes into a free fall. Speculative bubble is a scenario wherein the marketplace rate ofinvestment devices or different properties has risen to a degree which exceedsreasonable valuation and is not sustainable.

If there is a bubble, there ispossibility of crashes. Consumer will continue to buy if they think other willbuy, and when they decide to sell there is a huge fall in price causing afinancial crisis. Wider economic crisis is a situation in which a country facesan economic downturn caused by consecutive fall in GDP, unstable capitalcollection because of increase/ decrease in price due to inflation ordeflation. It can take the form of recession or a depression.

Financial crisis can becaused by various reason some of the major contributor for the financial crisisare leverage, asset-liability mismatch, uncertainty and herd behaviour,regulatory failures, contagion, recessionary effects. Leverage is consideredone of the major and common cause for financial crisis. (CAPITAL INSTITUTE, 2011) Leverage refers to financing strategy ofborrowing money. When a financial institute make an investment of the borrowingit has the chance of either higher return or a risk of liquidation. Since thereis chances of liquidation or bankruptcy the firm may not be able to payback itsleverage causing a financial unbalance.

Asset-liability mismatch is anothercause of financial crisis. It’s a situation that cause the bank run i.e.

whendepositor suddenly decide to withdraw their funds and bank cannot return thedemand on time causing a financial crisis. Uncertainty and herd behaviour isanother cause of financial crisis. This kind of financial crisis is caused bythe lack of knowledge and wrong investment decision. When a market makes awrong decision, or invest without calculating the future consequence it cancreate a financial crisis.

Regulation is process used by the government toprevent any financial crisis that may arise by making the financial stateavailable to the public. Therefor financial crisis may arise when the no orinadequate regulation. (PositiveMoney,2017)Contagion can be added as another cause of financial crisis. The main ideabehind contagion is that the financial crisis may spread for on organization toanother. For instance, when a financial state of an organization downturn itsmay results in downturn of another institution causing a chain reaction andultimately resulting a global financial crisis.

Recession refers to decrease ofGross Domestic Product (GDP) for two or more consecutive year. It causes highunemployment rate and increase in national debt. Recession effect is alsobelieved to be cause of financial crisis.Financial Crisis of 2007to 2008 also known as global financial crisis was the most devastatingfinancial crisis and market worldwide had to suffer its impact for many of thefollowing year. The financial crisis of 2007-8 was ignited by the downfall ofthe U.S.

housing market and the fall of the biggest investment bank of LehmanBrothers (Amadeo. K, 2018). Sincethen many plans and polices when put into action to prevent the financialcrisis however soon after the financial crisis followed the Great Recession andthe European debt crisis. As the history shows we can assume that in case offinancial crisis there will always be another one and its will always bedifferent than the previous one. The world is bound to face the financialcrisis however we cannot pinpoint when and where how it will happen.

Thecurrent financial state of the world is bigger than it was a decade ago, thereis credit bubble in all most every financial market. The consumers are totallydependent upon the financial institution. The bank easily provides debit cards,insurance companies provide higher insurance, etc. The credit bubble isexpanding every year however when the credit bubble reaches its limit it willcause another big financial crisis because the debt today is greater than of2007. According to the Federal Reserve Chair Janet Yellen (THE CONVERSATION,2017) “I dothink we’re much safer, and I hope that it will not be in our lifetimes, and Idon’t think it will be.”  Yellenbelieves that the rules and polices constructed by Federal Reserve has made theworld much safe from any future financial crisis. She also said (THE CONVERSATION, 2017), “We’re now about a decade after the crisisand memories do tend to fade, so I hope that won’t be the case, and I hopethose of us who went through it will remind the public that it’s very importantto have a safer, sounder financial system and that this is central tosustainable growth.” Although the regulation of federal reserve assumes thesafety from the financial crisis in the near future however, we cannot be surethat it won’t happen in the long-term.

  The effect of GreatFinancial Crisis of 2007-08 was worldwide. Most of the developed, developingcountries suffered the impact for many years. The developing countries sufferedrapid reduction in their export, in 2009 the world trade volume reduced from9.

3% to 4.1%. Moreover, the crisis caused negative impact in the investment ofthe new upcoming markets. Most of the developing countries had to pay a higherrate of interest to gain the capital.

As stated above the demand of the goodsand commodities decreased rapidly along caused the decrease in the exportearnings. The labour market in most of countries crumbled as their were lessdemand causing high rate unemployment. Remittances are another field affectedby financial crisis since remittances income in most of the developingcountries. Due to the financial crisis the remittances in developing countriesreduced in rapid rate. The decrease in the all over income of the country alsoresulted in the fall of the Gross Domestic Product (GDP) (LIN. J, 2008).

 Nepal being adeveloping country suffered from the Great Financial Crisis 2007-08. Nepalnational income is mostly driven from the external force than the internalforce. In Nepal the global financial crisis had a direct impact. The majorimpact was on the remittances gained from the U.S.

and other countries affectedby the financial crisis. Due to the decrease in the remittances consumerinvested less in market causing slow flow of the finance. The crisis causedrise in the price of commodities and shrink in the employment rate and themanufacturing, infrastructure market faced the rapid downfall. (Baral. A, 2008). Mexico is another countrythat was mostly affected by the Financial Crisis, Mexico being the neighbourcountry of the U.

S. the crisis caused the major impact in the household pricesand credit market. Though the effect was not so serious, Australia alsosuffered some from the Great Financial Crisis 2007-08. The credit market andhousing market and share market also took some blow as the price and ratesstarted decreasing in a fast rate. The Australian dollar rate also declined by30 percent (Australian Bureau ofStatistics, 2010). Financial crisis is not aone-day crisis that happens instantly. It is build up from collection ofdifferent financial problem of national and international causing massivebreakdown in financial state all around the world and leaves an aftereffect formany years however, financial crisis can be prevented and minimized thoughfollowing different process. Financial crisis is major worldwide problemhowever, it can be prevented.

(Peavler.R, 2016) After the Great Financial Crisis to prevent the similar crisis theFederal Reserve made some regulation about the bank and financial institutionsto reduce the risk of financial crisis. High level of regulation should befollowed in a strict pattern to prevent any future crisis. The Great Depressionof 1929-39 was believed to caused not implementing financial ethics. Thefinancial ethics suggest that the bank should not allow the risky creditwithout full inspection. Large firm should not focus on the short term profitthe large firm should have some social responsibility. Financial crisis is notan individual crisis it is build up process and the best way to prevent aglobal financial crisis is to find the problem that may cause the financialcrisis and try to solve.

The upcoming new markets should be analysed andsearched for the potential chances for future crisis before entering themarket. The banks providing large mortgages to the consumer without therequirement to obtain the mortgage is also the cause of the financial crisis,to prevent the crisis bank had to create strict rule of providing financialsecurities to obtain mortgage also known as bank securitization. The governmentand the banks should be able to estimate the sustainable debt level andrepayment time to control the credit bubble and prevent any chances of futurebank runs.           ENCYCLOPEADIA BRITANNICA,(2018). 5 of the World’sMost-Devastating Financial Crises.

online Available at https://www.britannica.com/list/5-of-the-worlds-most-devastating-financial-crises  accessed on JAN 22nd ,2018.Claessens, S and Kose, M.

Ayhan, Financial Crises: Explanations,Types and Implications (February 2013). CAMA Working Paper 06/2013.Available at https://papers.

ssrn.com/sol3/papers.cfm?abstract_id=2295201accessed on JAN 22nd, 2018CAPITAL INSTITUTE,(2011). The Six Root Causes of theFinancial Crisis. online available at http://capitalinstitute.org/blog/six-root-causes-financial-crisis/  accessed on JAN 22nd ,2018POSITIVEMONEY, (2017). Financial Crisis & Recession.

onlineavailable at http://positivemoney.org/issues/recessions-crisis/#1507142518426-c73618ad-c567  Accessed on JAN 22nd ,2018Amadeo. K, (2018).

The2008 Financial Crisis. THE BALANCE onlineavailable at https://www.thebalance.com/2008-financial-crisis-3305679  accessed on JAN 22nd, 2018THE CONVERSATION, (2017).Vital Signs: how likely is anotherfinancial crisis? It comes down to what we believe. online available at https://theconversation.com/vital-signs-how-likely-is-another-financial-crisis-it-comes-down-to-what-we-believe-80186  accessed on JAN 23rd ,2018Lin.

J, (2008). Impact ofthe financial crisis on developing countries. The Sunday Times. online available at http://www.

sundaytimes.lk/081116/FinancialTimes/ft325.html  accessed on JAN 23rd, 2018Barak, A (2008). Nepaland global financial crisis. TheHimalayans Times.

online available at https://thehimalayantimes.com/opinion/nepal-and-global-financial-crisis/  accessed on JAN 23rd ,2018Australian Bureau ofStatistics, (2010). THE GLOBAL FINANCIALCRISIS AND ITS IMPACT ON AUSTRALIA. online available at http://www.abs.gov.

au/AUSSTATS/[email protected]/Lookup/1301.0Chapter27092009%E2%80%9310accessed on JAN 23rd ,2018Peavler. R, (2016). Howdo we Prevent Another Financial Crisis? TheBalance.

online available at https://www.thebalance.com/how-do-we-prevent-another-financial-crisis-393151accessed on JAN 23rd, 2018 

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