Financial marketing Essay Example | Topics and Well Written Essays - 3000 words

Financial marketing - Essay Example In relation to the situation of credit crunch, it is usually observed that lenders are unable to provide adequate credits to borrowers, resulting in lessening their purchasing power. The term ‘credit crunch’ is recognised as a sudden restriction in the availability of various elements linked with credits or loans that include credit cards, inter-bank lending along with mortgages due to lack of financial liquidity. Thus, credit crunch is a situation wherein the availability of loans reduces by a considerable extent and accordingly, results into the condition of depression or recession (Cava, 2013). The quotation ‘‘†¦ the 2007 credit crunch is generally considered to have been triggered by losses on subprime mortgages in the USA, but its impact was too wide and too deep to be explained by losses in that sector alone† imply shortage of credit in the US economy (Pilbeam, 2010, pp. 427). This particular concern or issue i.e. credit crunch was commenced in the United States (US) during the year 2007 due to certain factors that eventually led towards the aforesaid critical situation. In this regard, it has been identified that the lenders in the US economy have been facing adequate challenges in recovering their loans leading to bad debt mortgages. Additionally, credit rating failures in the economy caused massive fluctuations to the disposable income within the US economy, during the period 2007-2008. The fluctuation in the disposable income led to massive fluctuations in sub-prime lending, affecting the housing market of the US severely. The losses in relation to sub-prime mortgages also adversely affected the financial market as the financial institutions were unable to repay the increased debt in the housing sector of the US. The subprime mortgages have unfavourably affected the financial system of the US as the customers along with the investors lost confidence in their approaches due to lack of obtaining credits or loans in th e economy. It has been conceived that the credit crunch in the US economy mainly caused due to the structure of an inappropriate interest rate policy designed by Federal Reserve (Whalen, 2008). Therefore, based on the above discussion, it can be ascertained that the effect of credit crunch eventually led towards the development of crisis situation in the US and ultimately affected the global economy at large. A.2: Mechanics of the Crunch Credit crunch in the US has led to the development of global crisis, which adversely affected the financial markets of other countries and also impacted the world economy. It has been identified that the interest rates in the US were quite high for a longer time period i.e. during the period 2003-2006. In this context, a constant rise in the interest rates has led to the development of inflation condition in the US. The rise in the interest rates has unfavourably affected the prices in the housing market in the final quarter of the year 2006. Subseq uently, the combination of factors including increasing interest rates and declined value of the housing market