Financial crisis Assignment Example | Topics and Well Written Essays - 1750 words

Financial crisis - Assignment Example This paper describes all the types of financial crisis. Monetary crisis occurs due to political instability and speculative attacks that effectively provoke financial institutions or the central banks to raise the interest rates as a measure of avoiding capital flight. Monetary crisis also occurs when there is a depreciation of the monthly percentage of the exchange rates and a decrease in the reserves that surpasses the mean by almost three standard deviation. The debt crisis is one of the fundamental challenges affecting most of the world economies with a classic example being the Eurozone crisis. The crisis is caused by recession that cause most of the economies not to owner their pledges in so far as repaying their debts is concerned. Debt crisis is caused by a number of complex factors that combine to exert pressure on respective sectors of the economy. Additionally, the crisis occurs when there is no balance between the revenues and the public debt. Financial crisis in the banking sector is sometimes caused by a combination of complex factors that otherwise affect capital gain of certain institutions. Banking institution is dependent on the deposits that make it possible for them to lend customers and institutions in terms of loans. There are two events that cause banks to run into a crisis. When a bank lends to customers and the depositors demand the money, it becomes difficult for the institution to meet such obligations effectively leading to a crisis. A bank can be insolvent when the deposits by customers are lost.