CASE ANALYSIS THE RED ZONE

GAURAV SHARMA GINNY AGGARWAL HIMANSHU BANSAL

QUESTION 1
Global Capital Markets Global currencies A currency Bearish trend in global market crisis is brought on by a decline a country's like in U.S. flow of funds were in the value of $928 billion in 2007 but currency.
dropped to $466 billion in 2008 Collapse of Lehman brothers FII had been reduced tremendously in India US $ :- US$/Rs. had reduced from Rs. 48 per dollar to 39.5 at the time of crisis Euro :- Euro dropped by 30% by creating instabilities in exchange rates INR :- INR tumbled by 27% as forex reserves had fallen by US$ 60 billion

Contd
Inflation: Commodities
Agro Goods:- Slowdown in demand in domestic as well as overseas market and slowdown in GDP and export had declined from $1682 million to $735 million in U.S. in 2008 Crude oil:- Oil climb to $ 150 a barrel and then rocketed to $ 200 a barrel and lead to further increase in oil prices Gold:- In 2008, gold crossed $1000 per ounce and recession made gold highly volatile CPI inflation had escalated to 26.6% 17.1% hike in food prices and 3.5% rise in transport in India In U.K., inflation touched 4.25% in 2008 from 2% in 2006 Same thing happened in most developing countries

QUESTION 2
One of the major reason of recession was collapse of the banking system in developed countries And in developing countries like India banking system is so strong that it was least effected and other sectors were effected by recession like exports, capital markets, etc. But developing countries had that much funds to fight recession generated by way of exports, FDI, FII Major portion of finance of developed countries was dependent on remittances Developing countries are more stable in using fiscal and monetary policies

QUESTION 3
This had happened because of global recession as the US$ and Euro values had reduced Exports were decreasing Foreign exchange reserves were going down Agricultural exports were the main sources of finance and this sector was not performing FII started withdrawing their money from the markets Pressure on liquidity in the domestic market Higher foreign exchange demand by Indian entrepreneurs who are seeking to replace external commercial borrowing by domestic financing, the Indian rupee has come under

Question 4
Causes

Sub prime lending crisis Tightening of liquidity Rising oil prices Capital flight in emerging markets Currency crisis
FII started withdrawing their funds Stock market crashed Large bank like Lehman Brothers crashed Increasing risk and less returns Difficulty in borrowing People started saving money rather than investing

Impact

Question 5
The repo rate was reduced by 425 basis points to 4.75% The reverse repo rate was reduced by 275 basis points to 3.25% The cash reserve ratio (CRR) was reduced by a cumulative 400 basis points to 5.0% The Statutory liquidity ratio (SLR) has been cut by 100 bps to 24.0 % The actual/potential provision of primary liquidity was of the order of Rs 5.6 trillion (10.5%of GDP) Availability and deployment of multiple instruments facilitated better sequencing of monetary and liquidity measures