EFFECTS OF GLOBAL FINANCIAL CRISIS IN DEVELOPED AND EMERGING FINANCIAL MARKETS

The influence of the crisis on developed, developing and emerging market countries will come through real and financial sectors. While the transmission mechanisms through trade are straightforward, those through financial channels appear to be more challenging as financial linkages have been more complicated than international trade. Anxiety about the possibility of financial crisis to arise in other great depression led to a drastic slowdown in stock market and significant loss of confidence by consumers and firms in market institutions around the world. In the financial sector in developed markets banking sector was the most and insurance sector was the least affected by the crisis. Financial crisis influenced banks around the world through increased uncertainty about the debtor quality and decreased availability of financing sources. Through deteriorating county’s fiscal position financial crisis affected deterioration of government bond market performances. Emerging market countries were less affected during the initial stages of the crisis than developed economies. But the persistence of the market dislocations, the deterioration of economic fundamentals in developed economies and rising global risk aversion significantly affected emerging market countries by late 2008. Countries with large current account deficits and whose banks prior to the crisis have been most reliant on foreign wholesale funding have been mostly affected by the ramifications of the financial crisis.