How does financial crisis affect currency Research Paper

How does financial crisis affect currency - Research Paper Example The levels of blame on the causes of the disaster were assigned partly to financial institutions, consumers, credit agencies, government housing policies, and regulators. The most proximate cause, however, was the rise in subprime lending (Blinder, 2013). It was difficult to understand how the collapse of the sub-prime mortgage threatened to collapse the US financial system and the economy. The governments had to inject trillions of taxpayers’ dollars into the financial systems and still, especially in the US, people lost their homes, savings and jobs. The collapse of the housing bubble was the spark that ignited the chain of events that eventually brought the fall of the 2008 crisis. The collapse was fueled by easy and available credit, low interest rates, toxic mortgages, and scant regulations. This means that there were trillions of dollars embedded in the risky mortgages throughout the system. As the mortgage related securities got sold to the investors around the world, packaged and repackaged, there was a lot of money embedded in the risky business. Markets and financial institutions that had been exposed to these mortgages and that had borrowed heavily against them suffered losses worth billions of dollars in the mortgages, as well as their related securities. The losses were magnified by synthetic securities and other derivatives not only in the US, but also around the globe. Through this, the trading ground was brought to a halt and the stock market plummeted, plunging the economy into a deep recession. The effects of the financial crisis were universal mainly due to the financial markets being globalized, as well as the existence of technology, which transformed the speed, efficiency and complexity of financial transactions and instruments. Many great economies reported the worst market declines after the twin towers’ crisis of September 11th,