Back to course 'BUS614: International Finance'

Topic outline

  • Unit 6: Financial Crises

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    This unit analyzes financial crises from a historical perspective to identify common traits and market behavior. Financial crises have occurred several times during the last two decades, and it becomes critical to understand their nature and ramifications for systemic risk. In this unit, you will review different financial crises with specific attention to the subprime mortgage crisis of 2008.

    Completing this unit should take you approximately 4 hours.

    • Upon successful completion of this unit, you will be able to:

      • compare a financial crisis to an economic recession;
      • identify trends that might lead to a financial crisis, such as systematic failure and regulatory failure; and
      • analyze the notions of "too big to fail" and "moral hazard".

    • 6.1: Financial Crises

      • book icon
        Financial Crises Book
        Students must
        Mark as done

        This reference explains one of the causes of financial crises, currency crises, and how fiscal policies play an important role in determining economic outcomes. What are some possible causes of a currency crisis?

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        Fundamentals of Banking Crises Book
        Students must
        Mark as done

        This page discusses what banking crises are, how they occur, and their effects on the economy. A banking crisis, much like a currency crisis or a national/foreign debt crisis, can cause a larger financial crisis. What are some possible causes of a banking crisis? What was the cause of the 2008 crisis?

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        The Global Financial Crisis Book
        Students must
        Mark as done

        Although recession and financial crisis could seem to be the same, they are different. What is a double-dip recession?

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        Moral Hazard Page
        Students must
        Mark as done

        One of the main reasons behind the 2008 meltdown was what is referred to as moral hazard. The financial institutions behave in a reckless manner without safeguarding investors' interests. This pauses the problem of asymmetry of information which is crucial for both investors and insurers whose funds are used to fund these financial activities. This section discusses moral hazard and how it could be mitigated. What is the role of financial intermediaries in reducing moral hazard, and what advantages do these institutions have over individuals?

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        Are Banks Too Big to Fail or Too Big to Save? Book
        Students must
        Mark as done

        Banks, financial institutions, and even big corporations that have their weight in the national economy may sometimes be subjected to adversities that require them to make tough decisions to maintain their viability. However, at times, this proves challenging with no way out. In such cases, and given the positive contribution that these corporations or institutions have had on the economy and since they are considered as one of the key players whose demise may lead to national economic or financial crisis, countries opt for rescuing them through specially designed packages. Here, you will learn more about the "too big to fail" notion within the banking sector and when countries rescue banks. What are the criteria drawn by the United States to rescue struggling banks? Is any bank eligible for rescuing?

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        Global Recessions Book
        Students must
        Mark as done

        This will help you further understand how financial crises lead to economic recession and examine this notion from a global perspective by further examining the 2008 financial crisis. What is a depression in the context of financial markets?

    • 6.2: Lessons Learned

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        Regulating Financial Markets After the Meltdown Page
        Students must
        Mark as done

        Reading this will provide you with a good background on how the financial meltdown of 2008 happened and the effects it had on the financial markets. You will come to learn how the shift in regulations started to shape. What role did credit rating agencies play in the financial crisis of 2008?

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        Bank Capitalization Page
        Students must
        Mark as done

        This explains what Bank Capitalisation is from a regulatory perspective. You will come to learn about Tier I and Tier II capital. This refers to the amount of capital a bank is required to hold. The amount of capital a bank is required to hold is determined by regulation. What are the determinists of bank capitalization?

      • book icon
        The Effects of Coronavirus on the Economy Book
        Students must
        Mark as done

        This article discusses the effects of the COVID-19 pandemic on financial markets. How does this compare to the financial crisis of 2008?

    • Unit 6 Study Resources

      This review video is an excellent way to review what you've learned so far and is presented by one of the professors who created the course.

      • page icon
        Unit 6 Review Video Page

        Watch this as you work through the unit and prepare to take the final exam.

      • url icon
        Study Guide: Unit 6 URL

        We also recommend that you review this Study Guide before taking the Unit 6 Assessment.

    • Unit 6 Assessment

      • quiz icon
        Unit 6 Assessment Quiz
        Students must
        Receive a grade

        Take this assessment to see how well you understood this unit.

        • This assessment does not count towards your grade. It is just for practice!
        • You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
        • You can take this assessment as many times as you want, whenever you want.