The aftermath of the global financial crisis 2007-2009 Essay

The aftermath of the global financial crisis 2007-2009 - Essay Example Consequently, liquidity became common; this facilitated the concept of innovative finance (D’Arista and Griffith-Jones, 2008), putting more funds into risky investments. Sub-prime loans were easily available before the emergence of financial crisis. Udell (2009) explains that the sub-prime loans were easily available in America. Basically, this type of loan is given to those people who do not have positive credit worthiness. And, banks and other financial institutions do not provide loans and other short-term credit facilities to those people or institutions who have negative credit worthiness or who are unable to repay loan. In the United States of America, before the beginning of financial crisis, many were unable to receive loans due to these factors and they resort to sub-prime loans. Initially, there were a few people and small institutions were giving sub-prime loans. With the passage of time, from local to multi-national banks and other financial institutions started gi ving sub-prime loans. Since higher interest rates were charged on the sub-prime loans, many banks and financial institutions saw it as an opportunity to earn more profit. The attacks of 9/11 were economically dangerous as well. The magnitude of attacks was sufficiently negatively on the economy of America. The entire American economy was damaged; the Fed came under pressure to economically manage the situation and devise such economic short-term policies to minimise the impacts of 9/11 on the American economy. With this aim in mind, Greenspan of Fed decided to reduce the interest rate to the level of 1 percent. The reduction of interest rates further allowed ordinary Americans to avail the benefit of interest rate reduction. This reduction further directly increased the risk of default and bankruptcy. Savings of developing countries further aggravated the availability of excessive liquidity. In the late 1990s and early 2000s, many developing countries poured their funds into the dif ferent American banks and other financial institutions. As a result, banks and financial institutions faced the problem of excessive liquidity. Normally banks face shortage of liquidity, and to fulfil their daily requirements, banks try different means to obtain funds. But, before the financial crisis, most of the banks and financial institutions were filled with the excessive liquidity. Now, banks were required to invest the excessive liquidity for the purpose of earning returns. The inflow of excessive liquidity was so huge that many banks totally compromised on the risks associated with different types of investments. Banks and other financial institutions were desperate to utilise the availability of excessive liquidity at the cost of safe and secure returns. Banks and other financial institutions did not give an appropriate consideration before going to invest; even they overlooked the possibility of default, which could shake their commercial existence. Banks and other financi al institutions started lending to those individuals and institutions that were lacking to fulfil the requirements of creditworthiness. Consequently, these factors contributed to the inception of global financial crisis, which did not remain within the boundary of the United States of America, but spread to other countries. Many shortcomings did exist in the risk management policies of banks. Too little understanding of exposure to

The various activities within a company should be coordinated by the Essay

The various activities within a company should be coordinated by the preparation of plans of actions for future periods. Thes - Essay Example This paper compares three basic terms that are planning, control and budgeting and describes the process involved in preparing a master budget and behavioral issues that a firm may face while preparing the budget. Planning, Control and Budgeting A successful organization prepares both short and long term planning. Weygandt, Kimmel and Kieso, 2009, p. 388) pointed that planning is the process of establishing enterprise wide objectives because plans not only set forth the objectives of the company but also the proposed ways of accomplishing them. As Davies and Pain (2002, p. 410) described, planning refers to the establishment of objectives and the formulation, evaluation and selection of the policies, strategies and tactics that are required for achieving the established objectives. Planning includes long term planning or commonly termed as strategic planning and short term planning. ... 410). Long term planning involves strategic planning over two or more years and the identification of the basic strategy that the firm may follow and the gaps between future needs and present capabilities of the firm (Drury, 2006, p. 426). As long-term plans include looking in to future for two or several years, the plans may become uncertain, imprecise and subject to change. Long term planning or strategic planning expresses certain steps required to achieve an organization’s goals because it considers intermediate and distant future. Long-range plans give detail about major capital investments required for maintaining present facilities, increasing capacity, diversifying products or procurement and developing markets. Long-range plans may aim at cost control or increasing market share for duration of three or more years (Hilton, Maher and Selto, 2005, p. 597). Budgeting involves the coordination of both financial and non-financial planning with a view to satisfy organisation al goals and objectives. It involves planning for future profitability because maintaining long-term profitability is very critical to organizational objectives. Kimmel, Weygandt and Kieso (2008, p. 1010) emphasized that budgeting and long-term planning are not the same. The main difference between them is the time period involved. Maximum length of a budget is one year and therefore budget is a kind of short-term plan. Other major differences between the long-term planning and budgeting are the emphasis and the amounts of details presented. Budgeting is meant for achieving certain short-term goals like meeting annual profit goals whereas long-term planning is meant to identify long-range goals, find and select effective strategies and develop policies and plans to implement the