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6 Facts About Financial Crises

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1

The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value.

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In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics.

In economics, a recession is a negative economic growth for two consecutive quarters.

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Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults.

A stock market, equity market or share market is the aggregation of buyers and sellers of stocks ; these may include securities listed on a stock exchange as well as those only traded privately.

A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth.

A sovereign default is the failure or refusal of the government of a sovereign state to pay back its debt in full.

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Financial crises directly result in a loss of paper wealth but do not necessarily result in significant changes in the real economy.

An economy is an area of the production, distribution, or trade, and consumption of goods and services by different agents in a given geographical location.

Paper wealth means wealth as measured by monetary value, as reflected in the price of assets – how much money one's assets could be sold for.

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Many economists have offered theories about how financial crises develop and how they could be prevented.

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There is no consensus, however, and financial crises continue to occur from time to time.

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