FİNANSAL PİYASALAR VE KURUMLAR - Deneme Sınavı - 5

Investment banking firms may suggest that some of a target corporation’s divisions will not be compatible with the acquirer’s operations. Thus, after a target corporation is acquired, some of its individual divisions may be sold. This process is referred to as asset stripping (Madura, 2015, pp. 645-646).

Investment banking firms commonly suggest that the corporation could benefit from revising its ownership structure. It may recommend a carve-out, in which the corporation would sell one of its units to new stockholders through an IPO. The proceeds of the IPO go to the parent company.

Investment-banking firms are making increasing inroads into traditional bank service areas such as small-business lending and the trading of loans. In performing these functions, investment banking firms normally act as agents for a fee.  Fees charged are often based on the total bundle of services performed for the client by the corporation. The portion of the fee or commission allocated to research and advising services is called soft dollars.

Although it is a controversial issue what the concept of crisis refers to, there is a consensus on that there exists four types of financial or economic crises in general:

• money crisis

• banking crisis

• external debt crisis

• systemic financial crisis

The Tulip Madness is often seen as the first recorded speculative balloon.

A banking crisis arises when the actual or potential bank failures prevent banks from fulfilling their obligations, or when the government is forced to intervene to prevent this failure. An external debt crisis occurs if an entity cannot pay the foreign debts, whether it is a government or private sector.

Financial crises are usually caused by the following factors (Mishkin and Eakins, 2012):

• Mismanagement of financial liberalization

• Asset Price bubbles or booms, meaning market prices of assets realized above economic values

• High uncertainty, usually following economic downturns or stock market crashes

• Current account deficits

• Budget deficits

• Excessive borrowing of government

• Excessive borrowing of businesses

• Vulnerability or fragility of banking industry

Ultimately, the panic in 1873 turned into an international economic crisis in many parts of the world, including the USA and Europe. In some countries, including Britain, it continued to the mid-1890s and was named “Long (Great) Depression”. At the end of this process, Britain lost its leadership position in the economy.

Ponzi finance is a type of financial fraud based on the principle of continuous fund raising from newcomers to the system.

The financial crisis which broke out in the US real estate market in the second half of 2007 became global crisis in 2008 with the bankruptcy of “Lehman Brothers” in September 2008.

1946 was a turning point for Turkish economy. In 1946, Turkish economy was no longer protectionist and independent, but it was an open economy, which depended on foreign credits (Boratav, 2015: 96). In 1946, the first big devaluation in the history of Turkey was carried out. This decision caused cost inflation to increase. Imports were increasing rapidly, thus the foreign trade deficit was also rising. There was a temporary recession and contraction in the markets. Industrial projects were adjourned. The Government ruled by Recep Peker resigned and it was replaced by Hasan Saka on 10 September, 1947. The economy was again in a bad condition in 1948. In the general elections held in 1950, the Democrat Party came to power with 53% of the votes. New lands were opened to agriculture. Due to the good climatic conditions, productivity in agriculture also increased export prices. During this period, foreign aid also increased and the 1946 crisis was overcome. This crisis was largely a result of World War II.

From the beginning of the 1980s, a number of developing countries began to experience a debt crisis. The Mexican moratorium in August 1982 gave a start to the period which is called the “Debt Decade” in the economic literature. This country was followed by some other Latin American countries such as Brazil, Chile and Argentina, and some African countries.

Declines in stock prices led to significant macroeconomic problems such as:

• diminishing credits,

• closure of workplaces,

• firing of workers,

• bankruptcy of banks,

• declining money supply,

• other economically detrimental events.

Although it is a controversial issue what the concept of crisis refers to, there is a consensus on that there exists four types of financial or economic crises in general:

• money crisis

• banking crisis

• external debt crisis

• systemic financial crisis

The 1772 credit crisis is the first of financial panics. This crisis was an indirect consequence of the bankruptcy of the East India Company, and it took place in England in 1772 in connection with the bombing of the Bengal Balloon.

The 1929 Wall Street Depression (October 1929) or the Great Depression was the most devastating financial collapse ever seen in US history to that date when its consequences were taken into account.

During Turkey’s currency crisis in 1994, output fell 6 percent, inflation rose to three digit levels, the Central Bank lost half of its reserves, and the exchange rate (against the U.S. dollar) depreciated by more than half in the first three months of the year.

The main objectives of imposing financial regulations are as follows (Llewellyn, 1999): • to sustain systemic stability,

• to maintain the safety and soundness of financial institutions,

• to protect the consumers.

The proclaimed features of Basel II and its differences from Basel I are the following (Moosa, 2015).:

• BaselIIincludes a “moresophisticated”measurement framework for evaluating capital adequacy;

• Basel II is not only about capital adequacy, but also about improving risk management in the finance industry by providing the correct incentives for better corporate governance and fostering transparency;

• In Basel II, an explicit weight is assigned to operational risk;

• Basel II is more risk-sensitive than Basel 1;

• Basel II allows a greater use of internal models for risk assessment and the calculation of regulatory capital

The effects of the financial crisis, in general, may include:

• Economic downturn

• Deterioration of cash flows

• Decline of lending

• Deterioration in the balance sheets of financial institutions

• Deterioration in the balance sheets of businesses

• Currency crises

• Rises in debt burdens

• Bank failures

• Company failures

• Increased volatility in financial markets

• Rises in inflation and interest rates

• Rises in unemployment