global financial meltdown and bangladesh

7/29/2019 Global financial meltdown and Bangladesh

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Root: Mispricing in the Massive Credit Default Swap Market

Sub prime Mortgage: Bank transferred credit risk to thirdparty through the process of securitization

Reckless growth of sub prime mortgage-lower yield in riskymortgage

Expansion of consumer credit, housing price bubble

Housing bubble burst mortgage default foreclosuresbank and insurance failurecredit freeze


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Sharp fall in the stock market price around theglobe, current stock prices are unable to explain the

value of the companies. Like Lehman Brothers

Spillover of financial crisis to real economy through

virulent credit crunchdepressed aggregate demand


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The purpose of the study is to analyze and

understand up to what extant the global

financial meltdown will affect Bangladesh,especially on its Foreign Direct Investment

(FDI), export, import and remittance.


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Methodology:The study has been conducted based on secondary source of

information mainly newspaper articles, economic journals and

reports.

Limitation:

Though enough articles have been published and interviews have

been broadcasted on the global financial meltdown but the studies

conduct on the possible impact of the melt down in Bangladesh are

conducted in year 2008 2009, thus gathering recent data was

troublesome


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The countrys capital market is far from the shock - it would

only get hit when other areas of the economy are affected as

it has a very little linkage with the foreign portfolio

investment, and there is hardly any listed company involved

in export business. Therefore in the short-term it would not

affect the stock market as the foreign portfolio investment

share is only less than 1 percent of the total market

capitalization.


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Bangladesh Banks investment from the reserve was

invested in the central banks of other countries or in the

government bonds of other countries therefore n be

assumed that the risk is limited and therefore credit line

of commercial banks to foreign banks or financial

institutions and their investment would be very meager


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Unlike many other countries, the global recession of 2008-09 was

not an unmixed curse for Bangladesh. The principal adverse

effect of the recession was a reduction in export revenue in 2009

on the back of a very high growth of 23 per cent in 2008.

However, Bangladesh was spared the traumatic export reduction

in other countries; its export declined by only 2.0 per cent. It

compares rather well to the reductions of 16-35 per cent

suffered by exporting giants such as the European Union (EU),

China, USA, India, Brazil, Canada and Japan


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Floating Exchange Rate regime makes the country exposed

to exchange rate risk with global shock.

The domestic inflation rate has already pushed up

In this situation, a coordinated deployment of fiscal and

monetary policy is essential. Monetary policy is already

exhibiting signs of laxity. The large balance of payments

surplus is also making monetary policy difficult. Indeed, if

the policy-makers stick to the current policy of keeping theexchange rate of taka against dollar fairly constant, as it

has done in the recent past, monetary policy will lose its

potency altogether


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There is unlikely to be any direct immediate impact on remittances.

Remittances in Bangladesh proved to be resilient during previous

financial crises in the world. The bulk (over 60 percent) of

Bangladesh's remittances come from the Middle East. Strong

remittance growth (44 percent) has continued in the first quarter ofFY09. However, if a deep and protracted recession ensues in the US

and EU, then the Middle-Eastern economies are likely to be adversely

affected. Stock markets in important Middle-Eastern economies have

already started to crash. Even if the current nearly $8 billion level of

remittances is sustained, it would be challenging to maintain its

growth momentum since 2001 if the world economy remains

depressed for an extended period.


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If there is a lesson to be taken from this crisis it is a simple and old

rule of economics: there is no free lunch. If one wants something

one has to pay for it. Debt is not a bad thing. Used responsibly, it is

at the heart of modern capitalism. But hiding mountains of debt in

complex instruments is a way to disguise costs, an invitation to

irresponsible behavior. At some point the, magical accounting had

to stop, consumers had to stop using their homes as banks and

spending money they didnt have. The Us and overleveraged

societies have gotten their wake up call. If wedont

panic andrespond with patience and efficiency then this whole scenario

might be a blessing in disguise for us.


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global financial meltdown and bangladesh

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