The Financial Crisis in Iceland Essay - 607 Words

Iceland is a small European Country. Its currency is Krona, ISK. The 2008-2009 Icelandic financial crisis was the major economic and political event in the Iceland. It had been worst financial crisis ever experienced by a small country. Sharp turn in 2007-2008 ISK dropped 24% against Euro from Nov 2007 to June 2008. Iceland involved the collapse of all three of the countrys major privately owned commercial banks, following their difficulties in refinancing their short-term debt and a run on deposits in the Netherlands and the United Kingdom. Here are some Factors that lead for such a worst financial crisis: 1. Bad Banking 2. Bad policies Financial Sector: Three major banks Glitnir, Kaupthing and Landsbanki, other saving and investment†¦show more content†¦The CBI set up a system of daily currency auctions in October to facilitate international trade. The value of the krona is determined by supply and demand in those auctions. Inflation Rates: Up to 2009 the inflation rate was recorded 16.51%. Wrong use of inflation targeting is the headline failure. High interest rates: High interest rates were provided. With interest rates standing at double level, uncovered interests parity encouraged households, firms, and banks to borrow in foreign currency. Government acquired 75% of Glitner bank. Trade was suspended and there was rise in fiscal deficit and public debt. Government was giving assurance to only the local depositors not to the foreign depositors. EFFECTS OF FINANCIAL CRISIS: United Kingdom had sealed all the three branches of the Iceland. Unemployment: About 300 employees of the organization become unemployed because of the new organization which is replaced by the old Landsbanki. Similar Job losses were expected in Glitner and Kaupthing. The job losses can be compared with the 2,136 registered unemployed and 495 advertised vacancies in Iceland at the end of August 2008. The employment had more the tripled. Companies face a serious loss: Many of the companies face loss due to crisis. The private Sterling Airlines and the national airlines Icelandair both are the examples of companies who face serious loss. Sterling airlinesShow MoreRelated2008 Financial Crisis: Icelands Then Now Essay examples1558 Words   |  7 PagesCauses of the Crisis On September 15, 2008, the American bank Lehman Brothers, with holdings over 600 billion USD, filed bankruptcy. This was by far the biggest bankruptcy in U.S history and it marked the beginning and the largest financial crisis ever. How can one of the biggest banks in the world fail? How can a bankruptcy in US make someone on the other side of the world unemployed? The answer is Collateralized Debt Obligations (CDOs) and it all started by new innovations in the financial sector combinedRead MoreShould Iceland Adopt Canadian Dollar?1387 Words   |  6 Pages Econ 345 Assignment 2 Topic: Should Iceland adopt Canadian Dollar? 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