Professional Documents
Culture Documents
1.1 Introduction
1.2 Globalization and the growth of International Trade and Capital Flows
1.2.1
Liquidity Crisis: a financial or other institution does not have enough liquid
assets to make the payments it has promised.
Series of events leading to the GFC:
1. 2000 2006; Subprime mortgages made to borrowers with relatively low
credit scores
2. House prices kept increasing, people started buying houses they could not
really afford.
3. Financial institutions securitized these mortgages and initially sold them
to investors across the world, but as time went by institutions increasingly
held the least risky parts of the tranches in their books.
4. Between 2006 2007 house prices started to fall and defaults on
subprime mortgages began.
5. Institutions who provided these subprime mortgages declared
bankruptcy.
6. Money markets froze, Treasury bond prices rose, and uncertainty was at
an all-time high.
MNC Multinational Corporation: parent company in the firms originating country and
the operating subsidiaries, affiliates etc., it controls both at home and abroad. The UN
refers to them as TRANSACTIONAL CORPORATIONS.
1.3.1
1.3.2
1.3.3
1.4.2
International Institutions
The International Monetary Fund (IMF)
Aims of IMF:
ensure the stability of the international monetary and financial
system (the system of international payments and exchange rates
among national currencies that enables trade to take place between
countries);
help resolve crises when they occur; and
Promote growth and alleviate poverty.
Surveillance information about the countrys economic condition and
policy advice.
Technical Assistance information to strengthen their capacity to design
and implement effective policies (i.e. fiscal policies, monetary and exchange
rate policies, banking & financial system supervision and regulation).
1.5.1
1.5.2