The reason is that central banks react to variables, such as inflation and the output gap, which are endogenous to monetary policy shocks.
Bank run When a bank suffers a sudden rush of withdrawals by depositors, this is called a bank run. Since banks lend out most of the cash they receive in deposits see fractional-reserve bankingit is difficult for them to quickly pay back all deposits if these are suddenly demanded, so a run renders the bank insolvent, causing customers to lose their deposits, to the extent that they are not covered by deposit insurance.
An event in which bank runs are widespread is called a systemic banking crisis or banking panic. In general, a currency crisis can be defined as a situation when the participants in an exchange market come to recognize that a pegged exchange rate is about to fail, causing speculation against the peg that hastens the failure and forces a devaluation.
Stock market crash and Bubble economics A speculative bubble exists in the event of large, sustained overpricing of some class of assets. If there is a bubble, there is also a risk of a crash in asset prices: However, it is difficult to predict whether an asset's price actually equals its fundamental value, so it is hard to detect bubbles reliably.
Some economists insist that bubbles never or almost never occur. The Panic of and Long Depression followed. Well-known examples of bubbles or purported bubbles and crashes in stock prices and other asset prices include the 17th century Dutch tulip maniathe 18th century South Sea Bubblethe Wall Street Crash ofthe Japanese property bubble of the s, the crash of the dot-com bubble in —, and the now-deflating United States housing bubble.
Currency crisis and Sovereign default When a country that maintains a fixed exchange rate is suddenly forced to devalue its currency due to accruing an unsustainable current account deficit, this is called a currency crisis or balance of payments crisis.
When a country fails to pay back its sovereign debtthis is called a sovereign default. While devaluation and default could both be voluntary decisions of the government, they are often perceived to be the involuntary results of a change in investor sentiment that leads to a sudden stop in capital inflows or a sudden increase in capital flight.
Skip this introductory text and go straight to the charts below or click on the stock in the list at right. Introduction. One way that retail investors can participate in the share market is to take part in a public float (an IPO - Initial Public Offering - or a subsequent new retail offer float after a re-organisation in the hands of a private equity company, for instance). case research Executive Summary Underpricing of Initial Public Offerings in Indian Capital Market Neeta Jain and C Padmavathi KEY WORDS IPO Underpricing Book building Subscription Market Return Opening Return This paper is an attempt to empirically explore the determinants of underpricing of Initial Public Offerings (IPOs) in the Indian Capital Market. Taxation Reviewer - Free download as PDF File .pdf), Text File .txt) or read online for free. taxation notes, reviewer.
Several currencies that formed part of the European Exchange Rate Mechanism suffered crises in —93 and were forced to devalue or withdraw from the mechanism. Another round of currency crises took place in Asia in — Many Latin American countries defaulted on their debt in the early s.
The Russian financial crisis resulted in a devaluation of the ruble and default on Russian government bonds. Wider economic crisis[ edit ] Main articles: Recession and Depression economics Negative GDP growth lasting two or more quarters is called a recession.
An especially prolonged or severe recession may be called a depression, while a long period of slow but not necessarily negative growth is sometimes called economic stagnation.
Some economists argue that many recessions have been caused in large part by financial crises. One important example is the Great Depressionwhich was preceded in many countries by bank runs and stock market crashes. The subprime mortgage crisis and the bursting of other real estate bubbles around the world also led to recession in the U.
Some economists argue that financial crises are caused by recessions instead of the other way around, and that even where a financial crisis is the initial shock that sets off a recession, other factors may be more important in prolonging the recession. In particular, Milton Friedman and Anna Schwartz argued that the initial economic decline associated with the crash of and the bank panics of the s would not have turned into a prolonged depression if it had not been reinforced by monetary policy mistakes on the part of the Federal Reserve,  a position supported by Ben Bernanke.
Strategic complementarity and Self-fulfilling prophecy It is often observed that successful investment requires each investor in a financial market to guess what other investors will do.
George Soros has called this need to guess the intentions of others ' reflexivity '. For example, someone who thinks other investors want to buy lots of Japanese yen may expect the yen to rise in value, and therefore has an incentive to buy yen too.
Likewise, a depositor in IndyMac Bank who expects other depositors to withdraw their funds may expect the bank to fail, and therefore has an incentive to withdraw too.
Economists call an incentive to mimic the strategies of others strategic complementarity.The Effect of Market Conditions on Initial Public Offerings1 A simple model is developed in the paper in which two Why are initial public offerings.
A speculative bubble exists in the event of large, sustained overpricing of some class of assets. One factor that frequently contributes to a bubble is the presence of buyers who purchase an asset based solely on the expectation that they can later resell it at a higher price, rather than calculating the income it will generate in the future.
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If you couldn’t afford to pay the original debt, you likely still can’t afford it. Taxation Reviewer - Free download as PDF File .pdf), Text File .txt) or read online for free. taxation notes, reviewer. ABSTRACT: The purpose of this paper is to investigate the degrees of initial public offering (IPOs) underpricing in Malaysia (listed on Main Market of Bursa Malaysia).
Based on 46 IPOs data collected from until in Bursa Malaysia, the degree of IPOs underpricing was calculated and factors of IPOs underpricing was determinants.