The year 2008 saw one of the most devastating economic periods in history– the 2008 global financial crisis. Known as one of the most intense financial upheavals since the Great Depression, the crisis had a particular influence on the forex market, causing widespread disruptions and accelerated changes to the global exchange rate mechanism. In this article, we will explore the events which occurred within the forex market during the 2008 financial crisis and what the effects were. The 2008 financial crisis was a period of global economic decline that lasted from 2007 to 2009. It was triggered by the collapse of large financial institutions and mortgage providers in the United States, and was characterized by reduced lending, rapidly decelerating economic activity, and plummeting asset prices. The crisis also had a major global impact, leading to economic contraction and financial instability in many developed and emerging markets.
The 2008 financial crisis had its roots in a lax regulatory environment, rising levels of systemic risk, and the promotion of a debt-fueled growth model in the United States and other advanced economies. Some of the main factors included:
•Loose monetary policy: Low interest rates and lax financial regulation led to an increase in risky lending and borrowing practices.
•Securitization of debt: Banks sold off their debt to investors, who were then exposed to the risk of a default if the borrower could not pay.
•Deregulation of financial services: The Gramm-Leach-Bliley Act of 1999 weakened regulations governing securities, banking, and insurance markets, leading to an increase in leverage and risk.
•Mortgage-backed securities: Banks sold bundles of mortgages to investors, with complex structures that led to increased risk.
•CDS: Credit default swaps allowed banks and investors to gamble on the health of home loans.
The crisis led to widespread financial losses, an economic recession, and a major restructuring of the banking and financial sector. Governments and central banks around the world responded with unprecedented levels of intervention and stimulus spending in order to save the global economy from the brink of collapse.