Free Custom «Effects of Economic Problems Caused by the Recent Crisis» Essay Paper

Free Custom «Effects of Economic Problems Caused by the Recent Crisis» Essay Paper

The recent crisis in the banking and financial industries have caused various economic problems consequently resulted into diverse effects on various sectors of the economy. Business firms have observed a tremendous increase in interest rates charged by banks on loans they borrow. Banking and financial institutions started introducing complex and twisted financial products that customers could not easily understand, for instance, Phoenix Limited (Hinds 53). This made corporate clients to lose trust in the financial systems thereby decreasing their deposits. This resulted into reduced money that was available for lending to other firms, hence low investment rates.

Some industry players in the financial sector started practicing illegal trade and fraud which led to further deprivation of the economy of its resources. The crisis in the banking and financial industries also resulted into financial market’s uncertainty. Business firms lacked sufficient knowledge and information in relation to the future of financial products by banks and the economy as a whole. The number of investment opportunities available for business firms reduced tremendously whereas the few opportunities that were available carried very high risks.

Similarly, the crisis led to decline in both domestic and international trade. Imports become more expensive since banking institutions could not finance trading companies. Export prices also declined.

Another problem experienced by business firms during the crisis was decreased accessibility to credit finances from banks. Most financial were either unable or unwilling to lend out huge sums of money for business expansions. This consequently resulted into decreased economic growth and development. Most retails traders were also unable to finance their trading activities. This led to less trade and many businesses were incurring losses. This lack of finance and reduction investments led to decreased output and production in the manufacturing industry. Businesses thus suffered from decreased supply of goods and services.

According to Hinds, the financial crisis led to reduced flow of capital between various sectors of the economy. It is evident that banks and other financial institutions are the sole providers of capital finance to many businesses (Hinds 389). This implies that when the banks are in a crisis, capital flow and generation are also affected.

Additionally, business firms were forced to incur additional costs for funding their projects, for example, expansion projects, increasing branch networks and supply chain management.

The economy also observed an increase in breaching of banking regulations. Most banks and financial institutions were devising unlawful ways of making additional profits to off balance losses incurred due to the crisis, for instance, through charging high interest rates above the recommended base rate by the central bank and charging high exchange rates when buying foreign currencies from business firms.

The crisis also led to high inflation rates which negatively affected trading activities, especially prices of goods and services and labor. As put across by Hemming, Kell and Schimmelpfennig, this high inflation led to a decline in the Gross Domestic Product and households’ Disposable Income, which further worsen the business environment (Hemming, Kell & Schimmelpfennig 113).

Economic Effects of Financial Crisis on Employees and Individuals

The economic problems experienced during the financial crisis led to high rates of employee layoffs and massive unemployment rates. Employees who were retained in their jobs had their salaries slashed. On the other hand, households were not able to access credit facilities with ease. Businesses and individuals were forced to borrow from foreign banks, hence exposing them to foreign exchange risks. There was increased drop in disposable income available to many households.

The banks were charging high interest rates on loans and other credit facilities offered to households. This further reduced their purchasing power as well as discouraging them from saving. There were fewer incentives to induce household savings. High interest rates led to low investments by the households, especially in short-term financial securities, bonds, treasury bills and shares. There was also decreased mortgage lending by banks hence low rate of acquisition of homes by individuals. This piloted poor housing and poor living standards. Fragility of the banking sector led to sprout of fear by individuals. Many people were afraid that they may lose their money their deposited in the banks.

The Voice of an Individual Consumer

In my opinion, an individual consumer does not have a voice in answering the basic economic questions because the economy is made of numerous players who collectively affect its structure and operations in one way or the other.  Thus the actions of an individual consumer may have no effect on the aggregate economy.

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Managing Culturally Diverse Workforce to Address the Needs of a Culturally Diverse Market

The challenges experienced in management of a culturally diverse workforce can be meet through intensive training of top management and human resource managers. The organization, its employees and other stakeholders must recognize and accept the diversity in cultural practices and beliefs. The products of the organization should be tuned towards meeting the dynamic and varied needs, tastes and preferences of different consumers. Identifying the various sources of diversity in the market is the first step towards meeting its needs. According to Muller, the culture of the organization should be flexible enough to allow swift changes whenever possible (Muller 273).


It is well known that banks are the central part to business activities and the economy at large. Whenever they experiences problems, the whole economy does. It is thus important to closely regulate the financial sector. Government intervention in activities of the banking and financial sector are very crucial for smooth economic growth and development. The government should introduce incentives and subsidies to private developers to stimulate growth and development of the economy.



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