Iceland Crisis and...

Iceland and the rest of the world reeling. In retrospect Iceland was fundamentally operatinglike a firm with a highly unviable growth model. However, the political affinity between Iceland and Britain also greatly added to the frugal downturn and financialcrisis. Britains use of anti-terrorism laws, in an attempt to protect their economicinvestments in Iceland, essentially labeled Iceland as a terrorist state which onlycontinued to stagnate the inflow of foreign bully. Although without a doubt the primarycause of the Icelandic financial crisis was economic, political factors such as therelationship and interdependence between Iceland and Britain exacerbated the alreadydire situation.Iceland began as an isolated, slightly impoverished country whose survival was based mostly on its fishing trade. 1 However, in recent years Iceland had been successfulat establishing itself as a premier offshore banking hub. At one point Icelanders wereecstatic and famed the fact that their tiny country of about 300,000 people had 3 banks in the worlds largest 300 banks. 2 The Icelandic government was able to enticeforeign investors by setting interest rates very high, which encouraged foreigners toinvest largely in financial assets.

The large inflow of foreign capital associated with suchmass foreign investment caused the krona to greatly appreciate. Since the krona wasgreatly overvalued it do all imports in both goods and services very trashy for Icelanders; the overvalued krona also made it a lot easier for Icelanders to start moneyfrom abroad. 3 The high interest rates, gargantuan capital inflow, and an appreciatedcurrency all help in creating the economic peg that Iceland enjoyed for many years ? This economic boom encouraged Icelanders to borrow from abroad and many failed toforesee that such economic prosperity was limited and that a bust is inevitably sledding tofollow a boom.The lack of government oversight on the banking frame also was an... If you want to get a full essay, send it on our website: Ordercustompaper.com

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