Question

12. (Financial Crisis) List the typical chain of events during the financial crisis in a small country.

Answer 1

Financial Crisis is a scenario where the financial assets start losing their nominal value in the market. The chain of events that might soon follow up with financial crises are, withdrawal or pulling out of funds from banks by investors as the fear of losing money starts creating a panic among them, funds do dry up in the economy as banks have to stop lending money at prevailing rates, unemployment in the nation might increase rapidly during financial crises, inflation might thrive manifolds as investors lose hopes in governments to cover up their expenditures on debt and thus asks for higher returns, international trade might get hit as domestic currencies value would fall with respect to other foreign currencies.