US Financial Crisis: Iceland's Unintended Consequences



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Code : ECC0009

Year :
2008

Industry : Banking, Insurance and Financial Services

Region : US,Iceland

Teaching Note: Available

Structured Assignment : Available

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Globalisation: Is the Whole World One Nation? The annals of globalisation can be traced back to the World War II. Countries were left in ruins and the only solution to cope up from the disastrous effects was unity among nations. During this phase of restructuring their economies, most of the countries initiated industrial revolutions, which accelerated globalisation. The world from then on, has transformed to be a global village where integration and interdependence are more or less imposed on a country due to global trade dynamics. In the era of economic and market liberalisation, a country cannot isolate itself fromparticipating in global economics. Resource exchange has become the fundamental principle for optimumallocation and effective utilisation...

Economic History of Iceland's Financial System: Built on External Debt Iceland, with no stock market till 1990, has developed significantly in a short span of time. It was during mid-1990, the country has undergone a great change with privatisation, reduced taxes and increased entrepreneurships

For decades, Icelandic banks were under the control of government. The State owned and operated them with few exceptions. By the end of 1990s, they were privatised and no serious attention was paid in securing foreign capital flows. Later, the scenario has entirely changed....

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US Crisis: Impact on Iceland's Financial System In early 2000s, during the US subprime market boom, the financial system of Iceland bulged by taking loans heavily from across the globe. Attracted to the high interest rates, Icelandic businesses and individuals borrowed abroad on cheaper interest rates and deposited in their home country. Speculators and borrowers made superior...

Iceland on Brink of National Bankruptcy: A Result of Crossing Limits? The whole banking structure of Iceland was constructed on a trembling base of foreign debt. The major banks of the nation, Kaupthing, Landsbanki and Glitnir bank, which have combined assets of 14.4 trillion ISK (or about $128 billion)6 were in danger. Top banks of Iceland hold foreign liabilities in excess of $100 billion. The banking debt amounted to £35 billion and the country's banks were facing escalating credit defaults (Exhibit V). Topping all this was the capital outflow and subsequent reduction in currency value. These factors culminated in strangling the banks for credit and thereby capital inflow to the country...






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