Banks in Europe also under Sub-prime Crisis effect after US

Topic: Mortgage Subprime Crisis

The governments are striving hard in Europe particularly of Germany, Britain, Belgium, where the effect is miserable due to bad Real Estate transactions that have undergone in past. The effect of huge package of $700 billion by US Federal Reserves and Citi group taking up Wachovia Corp, the fourth largest US bank made the governments of Europe to take stern action preventing devastating Financial effects.

To reduce the negative outcomes, which is worse compared to the Great Depression of 1930’s, the European governments have taken stake in Fortis, the biggest private employer in Belgium upto $16.4 billion. The German Government agreed to provide 35 billion euros to fund Hypo Real Estate to bring it back from the brink of disaster.

The Britain Government bought up 50 billion pounds of loans, mostly mortgages from Bradford & Bingley.

Source: DeccanHerald, September 30

FII’s gaining supremacy in Stock Markets

Topic: Effect of FII’s in Stock Market

The Stock Market has shed over 7500 points in span of 6.5 months in year 2008. There are many speculations over this loss and the most accepted speculation is that Indian Economy is now being more susceptible to Global happenings in the field of Finance at present than any other time in the past.
The Indian Economy is in a state of resonance with the happenings at the International Stage in Finance.

The most feared events which are effecting the Global Economy are:
1) The recession
2) Cut down in Interest rates
3) Mortage Sub-prime crisis in U.S

About 33% of the Transactions made in the Bombay Stock Exchange(BSE) and National Stock Exchange(NSE) are entirely under the control of Foreign Institutional Investors(FII). FII’s share in overall turnover has increased from 8% in 2001 to 35% in 2007. Huge Investments from FII’s will lead to uptrend in the
Stock Market while withdrawal from the Stock Market will lead to crash in the Stock Market.

The reason for Huge Investments by FII’s in Developing Economies

According to World Bank’s Global Development Finance 2008, the investment that are made in Developing Economies are in a upward movement, the inflows to Developing Countries increased from $164.5 billion in 2001 to $1.3 trillion in 2007. This increase in capital flows is mainly attributed to greater Return on Investments(ROI). The major benefactors of this investmensts are the 35 Developing Economies which includes China, India,South Korea, Latin American countries and North African countries.
The capital inflows is mainly distributed in the following areas:
1) Buying up companies
2) stock market
3) Giving Loans

Investments in Stock Market from private capital flows have gone from $0.84billion to $43billlion in span of 5 years.

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