RELATIONSHIP BETWEEN FINANCIAL CRISIS, EVENTS, AND ANNOUNCEMENTS
Financial Analysis is of utmost importance in any country be it an industrialized nation or a third world country. The aspects of financial analysis will massively affect the economic growth and development of a specific country. The various aspects of financial analysis include the financial statements prepared by certain companies, the stock market, government budgets, and rates of inflation, profitability levels, liquidity, and solvency analysis (Claessens 2001). Lack of adequate controlling systems has characterized the market, and this led to the emergence of loopholes that adversely affected the stability of world’s economy (Jarsulic 2012). The two effects of the loopholes included the rising rates of inflation and the global financial crisis/recession. Excess global savings and international macroeconomic imbalances caused the financial crisis (Horcher 2013). This has been the case since 1990 and has had adverse effects in many emerging economies such as in the Asian region, Latin American region and other developing countries. This research shall analyze the effect of the financial crisis on events and announcements in industrial countries and emerging countries and the relationship between these three aspects.
The goal of this study is to analyze the effect financial crisis has on events and announcements in developed and developing countries. Secondly, this study shall analyze the trend of downloading data from data stream broad ways to stock exchange in the developing countries. In addition, the effect of the announcements made in Europe, US or Japan on the data transmissions is analyzed. Furthermore, this research shall focus on the effect of the financial crisis on events and announcements in the Asian region. Financial crisis influences the operations and stability of economies worldwide. Economic growth and development is impossible to achieve if the menace of the financial crisis and its’ various aspects are not adequately addressed (Claessens 2001).
The announcements pertaining to macroeconomics will have a varying effect on different countries and regions. The announcements will have a direct effect on the volatility of the market (Jarsulic 2012). The announcements that concern data and regulatory policy will decrease uncertainty; this influences the trading markets in a positive way. The rating actions will tend to have an adverse effect on the current market conditions as they increase the rates of volatility (Claessens 2001). The effect these announcements have on various countries varies. Furthermore, the analysis of the financial crisis is different in every country, and the financial crisis will influence the events and announcement in these countries differently.
The effect of the financial crisis on announcements and events in developed countries is comprised of several factors. The United States engages in activities that involve printing of more notes. This practice has a negative impact on the rates of inflation (Horcher 2013). The US government does this to support the emerging economies in the world, and this money is advances the investment projects situated in these emerging countries. The announcement of the disbursement of funds to the emerging economies positively affects the share prices in those specific emerging economies (Claessens 2001). On the other hand, these announcements still promotes more discussions concerning financial crisis, the US government assists the emerging countries, and this results in more announcements pertaining to the issue of financial recession (Jarsulic 2012). This is an ascertainment that the financial crisis has an effect on the announcements and events in the developed countries.
The developing countries experience many more challenges compared to the developed countries. The aspect of the financial crisis has a massive impact on the events and announcements that occur in the developed countries. The rising rates of inflation result in many announcements and events in the third world countries (Claessens 2001). A high rate of inflation is an aspect of the financial crisis and the effects of high inflation rates on any economy are adverse. The announcements that result from high rates of inflation in developing countries include an increase in the prices of gas/fuel, increase in the interest rates on loans, decrease in the prices of various shares in the stock market and announcement of budget deficits (Jarsulic 2012). The events that occur due to high inflation rates include lack of food security, increased cost of living, lack of economic stability and diminishing value of a country’s currency.
The second aspect of the financial crisis in developing countries is the lack of adequate financial resources (Horcher 2013). The governments in third world countries become compelled to make certain announcements because of minute financial resources. These announcements include increased rates of taxation, announcements on acquisition of government bonds, supplementary budgets announcements, and announcements appealing to international donors and the International Monetary Fund (IMF). Several events that occur due to lack of adequate financial resources include international campaigns to obtain funds from donors, campaigns are conducted by the government to increase local investments and the governments borrows more money from World Bank to cater for this deficit (Claessens 2001).
Data transmissions from data stream broadways to the stock exchange affect the stocks in both positive and negative ways. Depending on the transmitted data, the price of the various companies’ shares will rise or fall (Horcher 2013). Secondly, the transmission of data from data stream broadways to the stock exchange can lead to several announcements. For example, a specific company can communicate about the launch of an initial public offering (IPO) by the use of data stream broadways. The government uses data stream broadways in communicating about changes in policy that concern the capital markets (Jarsulic 2012). In some countries, the Capital markets authority regulates the stock markets and money markets. These capital markets authorities use data stream broadways to transmit data that pertain to changes in policy and regulatory framework.
Data stream broadways have a massive impact on the financial crisis. In addition, the data stream broadways enables transmission of data on announcements and events pertaining to the financial crisis (Claessens 2001). The various companies, private individuals and the government can monitor the stock markets and money markets by the use of data stream broadways. All concerned stakeholders are able to make the appropriate decisions as they have real time uplink to the stock markets analysis (Horcher 2013). In cases whereby a financial crisis occurs, the announcements can be conveyed by the use of data stream broadways. In addition, any scheduled events that result from the financial crisis may be featured live using data stream broadways. The data stream broadways act as an appropriate means of communication in many instances. Data stream broadways play a very important role especially in announcements and events pertaining to the financial crisis (Jarsulic 2012).
The announcements and events that occur in Europe, Japan, and USA will have an effect on data transmission especially data conveyance that relates to financial analysis (Claessens 2001). This study shall analyze the effect of announcements relating to the financial crisis in Europe by using an example. The European Union made an announcement that pertains to the European Central Bank. The announcement was about ensuring that European countries acquire a share of the existing bond markets. In the past, the policy of the European Central Bank did not embrace the buying of bonds floated by different countries (Horcher 2013). In the event of a country, facing challenges or difficulties the European Central Bank could not even consider purchasing the bonds of that particular country. The financial crisis has compelled the European Central Bank to amend this policy. The effects of the financial recession have become a big challenge in the European region hence the European Central Bank cannot embrace its’ past policies (Jarsulic 2012).
The scenario of a financial crisis massively influences the announcements and events in any region worldwide (Claessens 2001). The announcement by the European Central Bank stating that there have been amendments in the rigid policies gave the European governments some hope. There is speculation in Europe that the financial crisis has ended. This might not be the case because the financial markets still show signs of danger in the stock markets and money markets (Horcher 2013). Despite the speculations that the financial crisis is over the European Central Bank has come forward and announced that if the situation arises where their intervention is needed they will take action. The European Central Bank has been reluctant in the past to solve issues pertaining to the financial crisis in Europe. The announcement delivered by the bank gave the European people a lot of hope even though that the proposal has not yet materialized.
Analyzing the aspect of financial analysis in the announcement made by the European Central Bank, the effects of this announcement will be several. The Euro would emerge stronger as a currency, and this would improve the terms of trade between Europe and the rest of the world. Secondly, the market price of various companies’ shares will drastically improve due to the stability of the Euro and prevailing market conditions (Jarsulic 2012). The European economies would also improve massively as the governments will become more stable. The budget deficits of the European countries will be extinct because they can float bonds for the European Central Bank to buy (Horcher 2013). The economic situation in Europe will be favorable, and this will increase the gross domestic product of the European nations.
The emerging countries will also benefit from the announcement made by European Central Bank. The benefit will be more to the countries that trade with European nations. Europe will increase its’ trade transactions with the rest of the world due to financial stability (Jarsulic 2012). The emerging countries will derive benefit from this; their export products will enjoy ready European market. The Europeans will provide grants and loans to the emerging countries, and this will enable the emerging countries to stabilize themselves financially (Claessens 2001). The countries that do not trade with European countries will also benefit. These countries will be able to obtain loans and grants from the European nations. This will enable these countries to be financially stable, as they will lack budget deficits. The stability of financial markets in Europe improves the stability of financial markets in the emerging countries and other countries in the world (Horcher 2013).
The announcements and events made in the US will affect the financial situations in the emerging countries and the rest of the world (Claessens 2001). The emerging countries will benefit massively if the financial situation in the United States is stable. In cases whereby the financial situation in the US becomes unstable, the emerging countries lack market for most of their export products. This in turn will result to a financial crisis in the emerging countries. The financial situation in the US will influence the financial climate in the whole of the world (Jarsulic 2012). Many investors and donors come from, the moment the US faces a financial crisis the investors and donors will not be able to support the emerging countries.
The prevailing economic condition in the US also affects the European and the Asian regions especially the Middle East. Financial crisis in the US limits the purchasing power of the world’s super power (Horcher 2013). The US is a major consumer of oil and petroleum products originating from the Middle East region. In the event of a financial crisis in the United States, the Middle East becomes adversely affected. If there is a financial crisis in the US, the situation in Europe becomes adverse too (Jarsulic 2012). The US and European countries trade heavily hence if the US is undergoing a financial crisis, Europe might undergo through the same situation. The prevailing financial climate in the US affects the emerging countries and the whole world at large.
Japan trades massively with the US and the European countries. The Japanese possess enormous skills in the fields of electronics and mechanics. They trade with the emerging countries in numerous ways. A financial crisis in Japan will affect the emerging countries in a negative way; this is because the Japanese government gives grants to the various emerging nations (Claessens 2001). In the event of a financial crisis in Japan, the emerging countries will lack the grants. This will be detrimental to the economic conditions of the emerging countries. The US is also affected to some point with a financial crisis that occurs in Japan (Jarsulic 2012). The level of trading between the two countries will decrease hence this will adversely affect the financial situation in both USA and Japan. The European countries undergo through challenges in the event of a financial crisis in Japan (Horcher 2013). All these countries are interdependent on each other if one country is facing a financial crisis, the effect on the other countries will be evident in one or more instances.
The Asian region has also experienced numerous financial crises; in 1997, the Eastern Region of Asia underwent a terrible financial crisis (Claessens 2001). The value of assets in the countries located in East Asia fell drastically. The value of the local currency in the particular countries also diminished. This crisis was unexpected, and no one was able to predict that such a crisis would occur in East Asia (Jarsulic 2012). This financial crisis resulted to the occurrence of several announcements and events in East Asia.
The prices of commodities escalated, the rate of inflation increased, and governments in these countries experienced huge budget deficits (Horcher 2013). The exchange rates in the Asian countries including Malaysia, Singapore, South Korea, Thailand, and the Philippines fell drastically. The value of a country’s currency is an indication of whether a country is undergoing a financial through a financial crisis or not. In cases whereby the value of the currency is high, the country is financially stable, and if the currencies’ value is low then a financial crisis is present in that particular country. Another indication of a financial crisis in a country is a drop in the traded equity prices (Claessens 2001).
The aspect of announcements plays a vital role in the financial stability of any particular country. An announcement was made on the second day of July in 1997 that the Thai currency, referred to as the Thai baht was going to be availed for floatation (Jarsulic 2012). This led to the devaluing of the Thai baht by about one fifths of its’ initial value. The Asian countries including Philippines, Malaysia, Indonesia, and South Korea were forced to abandon their defenses of the currency. The effects of this announcement further spread into the next financial year that was 1998.
The other countries including Taiwan and Malaysia had to devalue their currencies. Competitive devaluation was a common trend in Asia in this period as many countries began devaluing their respective currencies simultaneously (Horcher 2013). Despite this financial crisis in the Asia, Hong Kong managed to maintain the value of its currency. The exchange rates of the Hong Kong dollar with US dollar remained constant in the face of the current economic situation in Asia. The effects of this financial crisis on the Asian stock markets were evident because most of the stock markets in the Asian region plunged.
The Asian financial crisis was phenomenal, as the financial experts could not comprehend how the crisis in one country spread in the whole continent like a fire does in a dry forest (Jarsulic 2012). The events that occur before a financial crisis include the increase in the supply of money and falling of banks and financial institutions. This was evident in the Thai case because before the devaluation of the Thai baht the banks and financial institutions had begun to close their doors. The Thai banking sector underwent massive challenges, but no one would foresee that this were signs indicating the devaluation of the Thai baht (Claessens 2001).
The value of international reserves in a country’s central bank determines if the specific country will experience a financial crisis or not (Horcher 2013). The moment the value of international reserves decreases, a country’s currency diminishes in value very rapidly. This was the case in Thai; it is common practice in many countries to keep the value of international reserves in the central bank secret (Jarsulic 2012). The financial experts could not predict the financial crisis in Thai. The prevailing exchange rates also indicate the probability of a financial crisis occurring (Claessens 2001). The Thai scenario affected the whole of Eastern Asia. Furthermore, the lending activities in Thai diminished; this led to the financial crisis in the country and the whole of East Asia. The banking activities in the Asian countries also decreased massively.
In conclusion, events and announcements cause a financial crisis, the emergence of a financial crisis can be escalated by just a single announcement. On the other hand, a single announcement can promote financial stability in a given region (Horcher 2013). The European Central Bank ascertains this fact, immediately the bank made the announcement of buying bonds the value of the Euro appreciated rapidly. In addition, if a specific country experiences a financial crisis the effects spread to other countries very fast. Analysis of the relationship between a financial crisis, an announcement, and an event is critical to avoid the occurrence of a financial crisis in any country at all times.
The plan for the research is as shown below:
|Research Stages||Estimated Time Frame|
|Preliminary research paper- Formulation of the research topic and coming up with research hypothesis||26-02-2014 to 5-03-2014|
|Analysis of the research topic and appropriate methods of data collection and handing of work to supervisor for progress check||6-03-2014 to 20-03-2014|
|Collection of data that relates to financial crisis from various sources, including stock markets and government finance publications||21-03-2014 to 11-04-2014|
|Compilation of the obtained results, writing of the preliminary report and handing in the report to the supervisor||11-04-2014 to 17-04-2014|
|Research Paper-Formulation of the main thesis of the research paper||17-04-2014 to 08-05-2014|
|Analysis of the thesis and carrying out research on the thesis||09-05-2014 to 09-06-2014|
|Finalization of the research paper and handing in the of the research paper to the supervisor||10-06-2014 to 23-06-2014|
Claessens, S. (2001). International financial contagion. Boston [u.a.], Kluwer Acad. Publ.
Horcher, K. A. (2013). Essentials of financial risk management. Hoboken, N.J., Wiley. http://rbdigital.oneclickdigital.com.
Jarsulic, M. (2012). Anatomy of a financial crisis a real estate bubble, runaway credit markets, and regulatory failure. Basingstoke, Palgrave Macmillan.