Financial Analysis. Lesson 41. Financial Crisis Management and Contingency Planning

Financial Analysis. Lesson 41. Financial Crisis Management and Contingency Planning

1. Financial crisis management involves strategies to mitigate severe economic downturns.

2. Contingency planning prepares for potential financial disruptions or unexpected events.

3. Liquidity crisis occurs when companies lack cash to meet short-term obligations.

4. Bank run is when many customers withdraw deposits due to insolvency fears.

5. Systemic risk threatens the entire financial system through widespread instability.

6. Stress testing simulates adverse scenarios to evaluate financial institution resilience.

7. Capital buffer reserves additional capital to absorb unexpected losses.

8. Emergency fund is a reserve to handle sudden financial shortfalls.

9. Bailout provides government assistance to financially distressed institutions.

10. Monetary stimulus lowers interest rates or buys assets to boost liquidity.

11. Capital injection supplies additional funds to struggling financial institutions.

12. Moral hazard arises when risk-taking increases due to safety nets.

13. Debt restructuring adjusts repayment terms to ease financial strain.

14. Forbearance temporarily suspends obligations to provide financial relief.

15. TARP (Troubled Asset Relief Program) purchased toxic assets to stabilize banks.

16. Resolution authority manages failing institutions to protect financial stability.

17. Liquidity support provides temporary cash to alleviate short-term liquidity shortages.

18. Credit easing broadens credit access to stimulate economic activity.

19. Asset freeze halts sales to prevent panic-driven asset devaluation.

20. Financial contagion spreads crisis effects from one market to another.

21. Currency devaluation reduces currency value to improve export competitiveness.

22. Haircut reduces the amount creditors receive in debt restructuring.

23. Debt moratorium suspends debt payments during financial emergencies.

24. Special drawing rights (SDR) are IMF assets to support global liquidity.

25. Fiscal stimulus increases government spending or tax cuts to boost demand.

26. Interest rate freeze halts rate changes to stabilize lending environments.

27. Loan guarantee ensures loans will be repaid, reducing lender risk.

28. Exit strategy outlines recovery actions after crisis stabilization.

29. Lender of last resort provides emergency funds to prevent system collapse.

30. Deposit insurance protects depositors’ funds if financial institutions fail.

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Technical Examples:

1. Stress testing ensures institutions can withstand crisis scenarios.

2. Capital buffer offers protection against unforeseen financial downturns.

3. Liquidity support provides temporary funds to manage liquidity crises.