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date: 04 July 2020

Financial Crisis (2008) 

Source:
A Concise Oxford Dictionary of Politics and International Relations
Author(s):
Andrew BakerAndrew Baker

Financial crises involve a sudden pronounced drop in the market value or price of a financial asset or instrument. Falling asset prices are likely to result in an unwillingness to hold or buy a particular type of financial asset amongst market participants and investors. Many contemporary financial institutions’ risk management models are price-sensitive, so that falling prices create an imperative to sell those assets. In a situation of falling market prices, a downward self-perpetuating spiral can quickly take hold, producing an investment downturn and further ‘fire sales’ of particular types of asset. Sudden price reversals and downward spirals of this sort effectively result in wealth vanishing.... ...

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