What Is The Meaning Of a Financial Crisis?

A financial crisis, also known as a financial turmoil, is a sharp, short-lived and hyper-cyclical deterioration of all or most of the financial indicators of a country or several countries and regions, manifested by a sharp fall in the prices of financial assets or the collapse or near collapse of a financial institution or the plunge of a financial market such as the stock or bond market.

A financial crisis is a persistent contradiction in the operation of activities related to money and capital, for example, a credit crisis in the cashing of bills, a currency crisis caused by a disconnect between buying and selling, etc. Financial crises are characterized by increasingly pessimistic forecasts of economic prospects, a significant fall in the value of money, a sharp decline in the total volume and size of the economy, and consequently a severe blow to economic development, with business bankruptcies, rising unemployment, economic recession and even social and political unrest.

A financial crisis is a sharp, short-lived and hyper-cyclical deterioration of all or most financial indicators (e.g. short-term interest rates, financial assets, real estate, number of business bankruptcies and number of financial institution failures, etc.) in a country or several countries and regions.

Traditionally, financial crises were mainly sectoral crises in a country's financial sector, such as banking crises. In the modern economy, with globalization, financial crises have become more international in nature. The types of international financial crises are very complex and can be specifically classified as debt crises, currency crises, liquidity crises, etc. With the development of financial markets, the correlation between the various markets has gradually increased, so the financial crisis in recent years has become more and more comprehensive in character.

Debt crises. A debt crisis can also be referred to as a capacity to pay crisis, i.e., a crisis in which a country's debts are unreasonable and cannot be repaid on time, ultimately triggering a crisis.

Currency crises. In countries with fixed exchange rate systems or pegged exchange rate arrangements with a fixed exchange rate system, changes in the domestic economy are not matched by corresponding exchange rate adjustments, resulting in a disconnect between the internal and external value of their currency, usually reflected in an overvaluation of the local currency.

Liquidity crises. Liquidity crises are caused by a lack of liquidity. Liquidity can be divided into two dimensions.
First, there is a domestic liquidity crisis. A mismatch between the assets and liabilities of financial institutions, i.e., "borrowing short and lending long", can result in insufficient liquidity to service short-term debt.

The second is an international liquidity crisis. If the potential short-term foreign exchange performance obligations in a country's financial system exceed the size of foreign exchange assets that may be available in the short term, international liquidity will be insufficient.
Combined financial crisis. A combined financial crisis is usually a combination of several crises.