The Credit Crunch and its Impact and the policies for UK Government need to implement.

The Credit Crunch and its Impact and the policies for UK Government need to implement.

CONTENTS

Page Number

TERM OF REFERENCE 3

WHAT IS CREDIT CRUNCH? 3

HOW AND WHY DOES IT HAPPEN? 4 - 6

THE IMPACT OF CREDIT CRUNCH. 7 - 8

WHAT ARE THE POLICIES FOR UK GOVERNMENT

NEED TO IMPLEMENT? 9 - 13

REFERENCE 14

TERM OF REFERENCES

This report will explain what the term "credit crunch" and what the background and causes that led to the problem. Will also advise and explain what policies that UK Government need to implement in order for the British economy to emerge from the recession caused by the "credit crunch".

WHAT IS CREDIT CRUNCH?

The term "credit crunch" is used to describe a sudden cut in availability of loans or credit that include mortgage, credit cards, and inter-bank lending or when the cost of obtaining loans from the bank has suddenly increase.

Loans

Loan

Loan Forgiveness

The credit crunch makes it impossible for companies to loan because of the shortage in the availability of loans or credits from the banks and other lenders who are worried of rising bankruptcies and mortgage defaults. The banks or other lenders want to minimise their risk resulting by increasing the cost of obtaining the loans (i.e. charging higher interest rates) or reject all loans except for safest loans. During credit crunch, many businesses may have trouble with their cash flow causing them to lay off their employees or even close down due to insufficient funds resulting from inability to get loan or credit.

HOW AND WHY DOES IT HAPPEN?

Background and causes:

The credit crunch has been blamed for the more general economic downturn and everyone around the globe has been affected by it. The most obvious effect would be the slow-down in the...