Case studies on financial crisis.

• Main Authors: Loh, Alexis Guang Eong., Chung, Christine Mei Yin., Chan, Pui Mun.
• Other Authors: Kong Yoon Kee
• Format: Final Year Project
• Language: English
• Published: 2011
• Subjects: DRNTU::Social sciences::Economic theory
• Online Access: http://hdl.handle.net/10356/43873
• Institution: Nanyang Technological University

This paper comprises two case studies, namely the China property bubble and Euro crisis. In today’s economy the number of financial crises is rising, from the internet bubble in 2000 to the subprime crisis in 2008, and to the current Euro crisis. It is imperative for countries to understand how financial crises arise and the ways to prevent them from occurring in the future. As the China property bubble and Euro crisis are quite recent, hence not well documented yet, we present some forecasts on how they could pan out in the future. A property bubble has built up in China due to its stimulus package and the implementation of the property-specific supportive measures in 2008. Based on our detailed analysis, we foresee that the China property market will not collapse because of its strong economic growth, stringent lending practices and traditional mortgage model. Moreover, the trend of Chinese nationals migrating to larger cities is expected to persist, it will help to provide a sustainable real housing demand and prevent the property market from collapsing. However, a price correction may be inevitable due to a decrease in speculative housing demand in China resulting from the implementation of the cooling measures. For the Euro crisis, there is a possibility of the EU and Euro currency breaking up due to the limitations faced by weaker economies in their use of monetary tools to stimulate their economies and the differential debt burden faced by countries in the EU. However, we believe that this is unlikely to happen as it is still more advantageous to stay in EU due to ease of access to funds and trade related benefits. Moreover, the stronger economies in EU have close inter-bank dealings with the debt-stricken countries. Hence, they would want to stay in EU to use their influence to ensure a full debt repayment. Together with the various governments’ strong commitment to stay in the Eurozone, the EU and Euro currency are unlikely to break up.