Factors Affecting The Financial Crisis - 2534 Words

1. Introduction Financial crisis is often related to a situation that the value of financial asset(s) or financial institution(s) drops rapidly. Financial crisis is not likely to occur suddenly. It must be a process from creating the bubble till the bubble bursting. As many factors can be attributed to financial turmoil, usually there are several reasons for a financial crisis. It may seem that nothing going wrong when various factors are simmering. Thus, when the bubbles burst, everything comes together rapidly with great impact. When the bubble in American sub-prime mortgage lending and mortgage backed securities (MBSs) burst, no one knew it would lead to such a pervasive global financial crisis. Those toxic assets such as†¦show more content†¦When many subprime mortgage holders found themselves not able to pay back the mortgage, lenders took their houses and released them in the market and thus the housing price dropped. The leading credit crisis deteriorated the economy of the United States. As long as the U.S. government made efforts to spread out the adverse impact brought by the credit crisis to revive its economy, the global market started to suffer in different levels. The close interconnection within the international market eventually spread the financial crisis out across markets. The global market has suffered an unprecedented financial depression. The more the market is open, the greater loss the market is suffering. Modernized convenient platforms for financial instrument trading are one of the great contributors. In general, there are two types of â€Å"places† for financial instrument trading. One is trading on an exchange and another is trading over the counter (OTC). When trading in an exchange, certain rules and regulations are implemented in order to facilitate the trading process and to protect the interests of all the involved parties in the trading. When the buyer and the seller reach agreement which the bid and the ask price are equal, the transaction will be executed and the agreed price will be communicated throughout the market. Once two parties agree at a matching price, the trade can be executed no