Processor Is The Heart Of The Computer

Processor Is The Heart Of The Computer A microprocessor or processor is the heart of the computer and it performs all the computational tasks, calculations and data processing etc. inside the computer. Microprocessor is the brain of the computer. In the computers, the most popular type of the processor is the Intel Pentium chip and the Pentium 1V is the latest chip by Intel Corporation. The microprocessors can be classified based on the following features. Computer memory stores data temporarily for rapid retrieval. When most computer users refer to the term, they are talking about the main memory of the computer. This is also called the random access memory (or RAM for short). However, memory chips of varying types are integrated into just about every electronic device you can think of, including coffee machines, microwaves, network routers, and cell phones. 2.0 Question 1 Nowadays, the cost of the computer continues to drop dramatically while the performance and capacity of the system continue to rise equally dramatically. I am going to write about the evolution of microprocessor system. I will start from the 1st microprocessor Intel 4004 to Pantium4. Intel 4004 The 4004 is the worlds first microprocessor. The 4004 was created at Intel with Ted Hoff and Federico Faggin as the lead designers. The 4004 provided a new tool to the world. Up to that time and semiconductors and ICs were built for a specific purpose. The 4004 was the first semiconductor device that provided, at the chip level, the functions of a computer. The 4004 contains the two basic architectural building blocks that are still found in todays microcomputers: the arithmetic and logic unit and the control unit. The Intel 4004 ran at a clock speed of 108 kHz and contained 2300 transistors. By the time it was in production the clock speed was increased to 500kHz and later to 740kHz. It processed data in 4 bits, but its instructions were 8 bits long. The 4004 addressed up to 1 Kb of program memory and up to 4 Kb of data memory (as separate entities). It had sixteen 4-bit (or eight 8-bit) general purpose registers, and an instruction set containing 45 instructions. The 4004 family is also referred to as the MCS-4. Intel 8008 The first 8-bit microprocessor, Intel 8008 (i8008) was released 5 months after Intel 4004. The 8008 was available in two speed grades 500 KHz and 800 KHz. Because it took the CPU from 5 to 8 cycles to execute each instruction, the effective rate of instruction execution was from 45,000 to 100,000 instructions per second for Intel 8008 and from 72,000 to 160,000 instruction per second for Intel 8088-1 These numbers assume that the CPU uses fast memory and doesnt require wait states to access the memory. Although the effective speed in instructions per second of the 8008 microprocessor sometimes is lower than the effective speed of the 4004 CPU, overall performance of the i8008 was greater due to faster effective speed of some instructions, 8-bit architecture and more efficient instruction set. The 8008 had other advantages over the 4004, for example: the processor supported of 16 KB of memory (ROM and RAM combined), the size of internal CPU stack was 7 levels in contrast to 3 level-stack for the i4004, and the Intel 8008 could handle interrupts. Intel 8008 microprocessor was used in Mark-8 computer, which is considered to be the first personal computer. Intel 8080 The Intel 8080 was an early microprocessor designed and manufactured by Intel. The 8-bit CPU was released in April 1974 running at 2 MHz, and is generally considered to be the first truly usable microprocessor CPU design. It was used in many early computers, forming the basis for machines running the CP/M operating system (the later, compatible, Zilog Z80processor would capitalize on this, CP/M becoming the dominant OS of the period much like MS-DOS for the PC a decade later). Shortly after the 8080, the Motorola 6800competing design was introduced. The Intel 8080 was the successor to the Intel 8008 (with which it was assembly language compatible because it used the same instruction set developed by Computer Terminal Corporation). The 8080s large 40 pin DIP packaging permitted it to provide a 16-bit address bus and an 8-bit data bus. It had seven 8-bit registers (six of which could be combined into three 16-bit registers), a 16-bit stack pointer to memory (replacing the 8008s internal stack), and a 16-bit program counter. The 8080 had 256 I/O ports (allowing I/O devices to be connected without the need to allocate memory space as is required for memory mapped devices but at the expense of separate I/O instructions). The first single-board micro computer was built on the basis of the 8080 Intel Pentium Intel Pentium microprocessor was the first x86 superscalar CPU. The processor included two pipelined integer units which could execute up to two integer instructions per CPU cycle. Redesigned Floating Point Unit considerably improved performance of floating-point operations and could execute up to 1 FP instruction per CPU cycle. Other enhancements to Pentium core included: To improve data transfer rates the size of data bus was increased to 64 bits. At first Pentium processors featured separate 8 KB code and 8 KB data caches. The size of both data and code L1 caches was doubled in Pentium processors with MMX technology. Intel Pentium CPU used branch prediction to improve effectiveness of pipeline architecture. Branch prediction was enhanced in Pentium MMX processors. Many desktop Pentiums could work in dual-processor systems. To reduce CPU power consumption the core voltage was reduced on all Pentium MMX, and many mobile and embedded Pentium processors. Intel manufactured desktop, mobile and embedded versions of Pentium microprocessors. Distinguishing between different versions of Pentiums is not always easy because desktop, mobile and/or embedded Pentiums often used the same part numbers. In some cases Pentium processors with the same part and S-spec numbers were offered as desktop and embedded, or mobile and embedded microprocessors. Later versions of Pentium processors Pentium MMX included 57 new instructions. These instructions could be used to speed up processing of multimedia and communication applications. Like the Pentium processors, the Pentium MMX CPUs were also produced in three different versions desktop, mobile and embedded processors. Pentium II Intel Corporations successor to the Pentium Pro. The Pentium II can execute all the instructions of all the earlier members of the Intel 8086 processor family. There are four versions targeted at different user markets. The Celeron is the simplest and cheapest. The standard Pentium II is aimed at mainstream home and business users. The Pentium II Xeon is intended for higher performance business servers. There is also a mobile version of the Pentium II for use in portable computers. All versions of the Pentium II are packaged on a special daughterboard that plugs into a card-edge processor slot on the motherboard. The daughterboard is enclosed within a rectangular black box called a Single Edge Contact (SEC) cartridge. The budget Celeron may be sold as a card only without the box. Consumer line Pentium IIs require a 242-pin slot called Slot 1. The Xeon uses a 330-pin slot called Slot 2. Intel refers to Slot 1 and Slot 2 as SEC-242 and SEC-330 in some of their technical documentation. The daughterboard has mounting points for the Pentium II CPU itself plus various support chips and cache memory chips. All components on the daughterboard are normally permanently soldered in place. Previous generation Socket 7 motherboards cannot normally be upgraded to accept the Pentium II, so it is necessary to install a new motherboard. All Pentium II processors have Multimedia Extensions (MMX) and integrated Level One and Level Two cache controllers. Additional features include Dynamic Execution and Dual Independent Bus Architecture, with separate 64 bit system and cache busses. Pentium II is a superscalar CPU having about 7.5 million transistors. The first Pentium IIs produced were code named Klamath. They were manufactured using a 0.35 micron process and supported clock rates of 233, 266, 300 and 333 MHz at a bus speed of 66 MHz Second generation Pentium IIs, code named Deschutes, are made with a 0.25 micron process and support rates of 350, 400 and 450 MHz at a bus speed of 100 MHz. Pentium III The Pentium III is a microprocessor designed by Intel as a successor to its Pentium II. The Pentium III is faster; especially for applications written to take advantage of its Katmai New Instructions (the code name for the Pentium III during development was Katmai). The 70 new computer instructions make it possible to run 3-D, imaging, streaming video, speech recognition, and audio applications more quickly . In addition, the Pentium III offers clock speeds up to 800 MHz. The Katmai New Instructions are similar to the instructions optimized for multimedia applications called MMX and now included in most Pentiums. However, unlike the MMX instruction set, the Katmai instructions support floating point units as well as integer calculations, a type of calculation often required when still or video images are modified for display. The Katmai instructions also support Single Instruction Multiple Data instructions. These allow a single instruction to cause data to be modified in multiple memory locations simultaneously, a kind of parallel processing. For 3-D applications, changing values in parallel for a given 3-D scene means that users can see smoother and more realistic effects. Application developers can create effects that the slower instructions could not support, such as scenes with subtle and complex lighting. Animated effects and streaming video should also be less choppy for the viewer. The new instructions also specifically include some that will make speech recognition faster and more accurate and allow the creation of more complex audio effects. Pentium IV The Pentium 4 is a seventh-generation x86 architecture microprocessor produced by Intel and is their first all-new CPU design since thePentium Pro of 1995. The original Pentium 4, codenamed Willamette, ran at 1.4 and 1.5 GHz and was released in November 2000. Unlike the Pentium II, Pentium III, and various Celerons, the architecture owed little to the Pentium Pro design, and was new from the ground up. To the surprise of most industry observers, the Pentium 4 did not improve on the old P6 design in either of the normal two key performance measures: integer processing speed or floating-point performance. Instead, it sacrificed per-cycle performance in order to gain two things: very high clockspeeds, and SSE performance. As is traditional with Intels flagship chips, the Pentium 4 also comes in a low-end Celeron version (often referred to as Celeron 4) and a high-end Xeon version intended for SMP configurations. The Pentium 4 performs much less work per cycle than other CPUs (such as the various Athlon or older Pentium III architectures) but the original design objective to sacrifice instructions per clock cycle in order to achieve a greater number of cycles per second. Above are the evolution of microprocessor, I just explain some of it, because there are too many types of microprocessor. Following the microprocessor above, it showing that microprocessors is getting better and run faster year by year. 2.0 Question 2 Memory is one of the most important things that is incorporated into computers, be it computers or PCs. There are various computer memory types installed, depending upon the actual need for functioning and specifications of the system. The computer memory relates to the many devices and components that are responsible for storing data and applications on a temporary or a permanent basis. It enables a person to retain the information that is stored on the computer. Without it, the processor would not be able to find a place which is needed to store the calculations and processes. There are different types of memory in a computer that are assigned a task of storing several kinds of data. Each has certain peculiarities and capacities. Random Access Memory (RAM) RAM is a location within the computer system which is responsible for stacking away data on a temporary basis, so that it can be promptly accessed by the processor. The information stored in RAM is typically loaded from the computers hard disk, and includes data related to the operating system and certain applications. When the system is switched off, RAM loses all the stored information. The data remains stored and can be retained only when the system is running. When the RAM gets full, the computer system is more likely to operate at a slow speed. The data can be retrieved in any random order. Generally, there are two types of RAM; namely Static RAM (SRAM) and Dynamic RAM (DRAM). When many programs are running on the computer simultaneously, the virtual memory allows the computer to search in RAM for memory portions which havent been utilized lately and copy them onto the hard drive. This action frees up RAM space and enables the system to load different programs. RAM, or Random Access Memory, is volatile. This means that it only holds data while power is present. RAM changes constantly as the system operate, providing the storage for all data required by the operating system and software. Because of the demands made by increasingly powerful operating systems and software, system RAM requirements have accelerated dramatically over time. For instance, at the turn of the millennium a typical computer may have only 128Mb of RAM in total, but in 2007 computers commonly ship with 2Gb of RAM installed, and may include graphics cards with their own additional 512Mb of RAM and more. Read Only Memory (ROM) Read only memories (ROMs) are used in computer systems to provide a permanent storage of program instructions. A read only memory (ROM) structure comprises a matrix of intersecting bit lines and word lines with memory cells at select intersections. A read only memory (ROM) consists of an array of semiconductor devices (diodes, bipolar or field-effect transistors), which interconnect to store an array of binary data. A ROM basically consists of a memory array of programmed data and a decoder to select the data located at a desired address in the memory array. A ROM array of memory cells is defined by a number of transistors generally arranged in a grid pattern having a plurality of rows and columns. Each individual transistor of each memory cell of the ROM array is placed between a column of the series of columns and a voltage bus. A resistive ROM typically includes a planar array of parallel word lines, which is perpendicular to and insulated from a planar array of parallel bit lines . A designated number of the memory cells in the ROM have a resistive, element connecting a node of one word line with a node of one bit line. Each memory cell, consisting of a single transistor per bit of storage, is hardware pre-programmed during the integrated circuit (IC) fabrication process and is capable of maintaining the stored data indefinitely. ROM memory is used to hold and make available data or code that will not be altered after IC manufacture. Data or code is programmed into ROM memory during fabrication. The values stored within the ROM are read (i.e., output) by measuring a sense current flowing through each bit line from the memory cells of successive word lines. Three basic types of ROMs are mask-programmable ROM, erasable programmable ROM (EPROM) and field-programmable ROM (PROM). Cache Cache is a kind of RAM which a computer system can access more responsively than it can in regular RAM. The central processing unit looks up in the cache memory before searching in the central memory storage area to determine the information it requires. This rule out the need for the system to search for information in larger and bigger memory storage areas, which in turn leads to a faster extraction of data. Cache memory is random access memory (RAM) that a computer microprocessor can access more quickly than it can access regular RAM. As the microprocessor processes data, it looks first in the cache memory and if it finds the data there, it does not have to do the more time-consuming reading of data from larger memory. Cache memory is sometimes described in levels of closeness and accessibility to the microprocessor. An L1 cache is on the same chip as the microprocessor. (For example, the PowerPC 601 processor has a 32 kilobyte level-1 cache built into its chip.) L2 is usually a separate static RAM (SRAM) chip. The main RAM is usually a dynamic RAM (DRAM) chip. In addition to cache memory, one can think of RAM itself as a cache of memory for hard disk storage since all of RAMs contents come from the hard disk initially when you turn your computer on and load the operating system (you are loading it into RAM) and later as you start new applications and access new data. RAM can also contain a special area called a cache that contains the data most recently read in from the hard disk. Computer Hard Drive A hard disk is part of a unit, often called a disk drive, hard drive, or hard disk drive, those stores and provides relatively quick access to large amounts of data on an electromagnetically charged surface or set of surfaces. Todays computers typically come with a hard disk that contains several billion bytes (gigabytes) of storage. A hard disk is really a set of stacked disks, each of which, like phonograph records, has data recorded electromagnetically in concentric circles or tracks on the disk. A head (something like a phonograph arm but in a relatively fixed position) records (writes) or reads the information on the tracks. Two heads, one on each side of a disk, read or write the data as the disk spins. Each read or write operation requires that data be located, which is an operation called a seek. (Data already in a disk cache, however, will be located more quickly.) A hard disk/drive unit comes with a set rotation speed varying from 4500 to 7200 rpm. Disk access time is measured in milliseconds. Although the physical location can be identified with cylinder, track, and sector locations, these are actually mapped to a logical block address (LBA) that works with the larger address range on todays hard disks. Flash Memory Flash memory (sometimes called flash RAM) is a type of constantly-powered non-volatile memory that can be erased and reprogrammed in units of memory called blocks. It is a variation of electrically erasable programmable read-only memory (EEPROM) which, unlike flash memory, is erased and rewritten at the byte level, which is slower than flash memory updating. Flash memory is often used to hold control code such as the basic input/output system (BIOS) in a personal computer. When BIOS needs to be changed (rewritten), the flash memory can be written to in block (rather than byte) sizes, making it easy to update. On the other hand, flash memory is not useful as random access memory (RAM) because RAM needs to be addressable at the byte (not the block) level. Flash memory gets its name because the microchip is organized so that a section of memory cells are erased in a single action or flash. The erasure is caused by Fowler-Nordheim tunnelling in which electrons pierce through a thin dielectric to remove an electronic charge from a floating gate associated with each memory cell. Intel offers a form of flash memory that holds two bits (rather than one) in each memory cell, thus doubling the capacity of memory without a corresponding increase in price. Flash memory is used in digital cellular phones, digital cameras, LAN switches, PC Cards for notebook computers, digital set-up boxes, embedded controllers, and other devices. These are just the common and main computer memory types which facilitate memory and data storage. However, there are many subtypes which are sorted out according to the memory-related functionalities they perform and the requirements they serve. 4.0 Conclusion In the assignment, I have completed it by myself and I was doing research in internet, reference books and some of the notes that giving by lecturer. In question, I was explaining the evolution of the microprocessor, from the 1st generation to Pentium 4. I was choosing some of the microprocessors randomly and explain it with detail. Through the question, I know the microprocessors are getting better year by year. In question 2, I was requested to compare the various types of memories. So I have explained and compare in my question 2. For example: RAM, ROM, Hard drive, cache and so on. I learn a lot of knowledge through the assignment. It will be helpful for my examination.

Why Our Company Should Adopt a Direct Marketing System

Our company, Duetsche computers, has been using retail marketing since its inception in 1985. We want to thank you all the retailers for the commitment you have shown to our company for all that time, to make it a leading supplier of computers and accessories. As you all know, the global market is changing very fast and for us to keep up with our competitors, we need to make several changes. We began by changing our technology and installed more efficient production machine. However, this has not helped to keep us ahead of our competitors. There are so many companies that are eating slowly into our market segment. This is why the company commissioned a research on our marketing strategy, comparing it with the global trend and we have found that we need to change it. From the result that we gathered in our research, most companies have preferred direct marketing as compared to retail marketing. It has come to our realization that we need to know our business well since we know our competitors. Direct marketing is the answer to modern marketing. It is not that we want to sideline our retailers who have supported us for all that time but it’s because we have to answer to the market needs. Marketing is becoming more direct, highly focused and interactive. Direct marketing is more personalized and aimed at individual markets rather than to the mass i.e. aimed at micro markets, who are the customers. According to Andrew R. et al. (2006), direct marketing remains the most effective channel for providing customers with personalized marketing that they prefer. We have found retail marketing very costly to us, and in the end we have been passing that cost to the consumers. This cost is increased by the inventory cost and ware housing cost. We have not been fixing prices for our electronic products and most of you have been selling at different prices. This has placed us at a disadvantage since competing companies sell their products at a uniform price throughout the country. We have also found that, most companies are making the product to consumer specification and that is the direction we want to take. We want to start making customized items as per the customer specification.   We have found it necessary to adopt a production model bases on the model of ‘Just-in-time, build-to-order’ as put forward by James Fulkerson (2003) of Dell Company – United States. This will help us to include new technology to orders placed by the customers. However, we are not to get into marketing alone. We want you to partner with us. We want you to move from you shops and establish a web-based shop. In turn we are going to establish a highly efficient sales team in our marketing department. You shall do the advertising of the product and then customers shall make orders to you. However we shall also partner in advertisement but for us at the company level and you at the distributor level.   The customers shall place order to you and you shall forward your order to the company with the required specification.   We can guarantee to you that, your orders shall be ready with the first five days of placing. The customer should have the orders delivered within the first 7 to 10 days. You shall be paid 8% commission for every delivery you make. This is surely a better method of improving our company sales and in advance your business sales. However it needs all of us to start working serious to maintain the market segment that we have acquired and that is a sure way to move about it. References Andrew, R., Dale, M., William, J. and Lind, T. (2006). Direct marketing in action: Cutting edge strategies. Fulkerson, J. (2003). Hewlett-Packard Saves U.S. $1.27 Million by Streamlining Online Sales Guide Production on 9th November 2007. Woodgrange Technologies Ltd. (2005). Businesses case study. Retrieved from, http://www.business2000.ie/cases/cases_8th/case1.htm   on 9th November, 2007.      

Definition and Examples of Slips of the Tongue

A slip of the tongue is a mistake in speaking, usually trivial, sometimes amusing. Also called  lapsus linguae or tongue slip. As British linguist David Crystal has noted, studies of tongue slips have revealed a great deal about the neuropsychological processes that underlie speech. Etymology: A translation of the Latin, lapsus linguae, cited by English poet and literary critic John Dryden in 1667. Examples and Observations The following example is from an article by Rowena Mason in The Guardian: [British Prime Minister]  David Cameron  has accidentally described the 7 May election as career-defining when he meant country-defining, his third gaffe of recent days.  His mistake on Friday was immediately jumped on by his opponents as unintentionally revealing that he was more concerned about his own job prospects than the future of the UK.  It is likely that the prime minister will step down as Tory leader if he is voted out of Downing Street.This is a real career-defining...country-defining election that we face in less than a week’s time, he told an audience at the headquarters of Asda in Leeds. This example comes from an article written by Marcella Bombardieri, which was published in The Boston Globe: In an apparent slip of the tongue on the campaign trail yesterday, Mitt Romney mixed up the names of Al Qaeda mastermind Osama bin Laden and Democratic presidential candidate Barack Obama.The former Massachusetts governor was criticizing Democrats on foreign policy when he said, according to the Associated Press, Actually, just look at what Osam—Barack Obama—said just yesterday. Barack Obama, calling on radicals, jihadists of all different types, to come together in Iraq. That is the battlefield.... Its almost as if the Democratic contenders for president are living in fantasyland....Romney, who was speaking at a Chamber of Commerce meeting in Greenwood, S.C., was referring to an audiotape broadcast Monday on Al Jazeera, purportedly of bin Laden, calling for insurgents in Iraq to unite.  Romney spokesman Kevin Madden later explained: Governor Romney simply miss poke. He was referring to the recently released audiotape of Osama bin Laden and misspoke when referencing his name. It was just a brief mix-up. Author Robert Louis Young shared the following quote by New York Congresswoman Bella Abzug (1920-1998) in his book, Understanding Misunderstandings: We need laws that protect everyone. Men and women, straights and gays, regardless of sexual perversion...ah, persuasion.... Heres an example from an article written by Chris Suellentrop in Slate: The Badger State boasts [John] Kerrys most famous slip of the tongue: the time he declared his love for Lambert Field, suggesting that the states beloved Green Bay Packers play their home games on the frozen tundra of the St. Louis airport. Types of Slips of the Tongue According to Jean Aitchinson, a professor of language and communications, Normal speech contains a large number of such slips, though these mostly pass unnoticed. The errors fall into patterns, and it is possible to draw conclusions from them about the underlying mechanisms involved. They can be divided into (1) Selection errors, where a wrong item has been chosen, usually a lexical item, as with tomorrow instead of today in Thats all for tomorrow. (2) Assemblage errors, where the correct items have been selected, but they have been assembled in the wrong order, as in holed and sealed for soled and healed. Causes of Slips of the Tongue British linguist George Yule says, Most everyday slips of the tongue...are often simply the result of a sound being carried over from one word to the next, as in black bloxes (for black boxes), or a sound used in one word in anticipation of its occurrence in the next word, as in noman numeral (for roman numeral), or a tup of tea (cup), or the most highly played player (paid). The last example is close to the reversal type of slip, illustrated by shu flots, which may not make you beel fetter if youre suffering from a stick neff, and its always better to loop before you leak. The last two examples involve the interchange of word-final sounds and are much less common than word-initial slips. Predicting Slips of the Tongue [I]t is possible to make predictions about the form tongue slips are likely to take when they occur. Given the intended sentence The car missed the bike / but hit the wall (where / marks an intonation/rhythm boundary, and the strongly stressed words are italicized), the likely slips are going to include bar for car or wit for hit. Most unlikely would be har for car (showing the influence of a less prominent word in the second tone unit) or lit for hit (showing a final consonant replacing an initial one), says David Crystal. Freud on Slips of the Tongue According to Sigmund Freud, the founder of psychoanalysis, If a slip of the tongue that turns what the speaker intended to say into its opposite is made by one of the adversaries in a serious argument, it immediately puts him at a disadvantage, and his opponent seldom wastes any time in exploiting the advantage for his own ends. The Lighter Side of a Tongue Slip From the television show, Parks and Recreation... Jerry: For my murinal, I was inspired by the death of my grandma.Tom: You said murinal![Everyone laughs]Jerry: No, I didnt.Ann: Yes, you did. You said murinal. I heard it.Jerry: Anyway, she—April: Jerry, why dont you put that murinal in the mens room so people can murinate all over it?Tom: Jerry, go to the doctor. You might have a murinary tract infection.[Jerry takes down his mural and walks away defeated.]Jerry: I just wanted to show you my art.Everyone: Murinal! Mural! Murinal! Sources Aitchison, Jean. Slip of the Tongue.  The Oxford Companion to the English Language. Edited by Tom McArthur, Oxford University Press, 1992. Bombardieri, Marcella. Romney Mixes Up Osama, Obama During S.C. Speech.  The Boston Globe, 24 Oct., 2007. Crystal, David. The Cambridge Encyclopedia of Language. 3rd ed., Cambridge University Press, 2010. Freud,  Sigmund. The Psychopathology of Everyday Life  (1901). Transcribed by Anthea Bell, Penguin, 2002. Mason, Rowena. Cameron Mocked After Describing Election as Career-Defining. The Guardian, 1 May, 2015. Suellentrop, Chris. Kerry Puts the Gloves On.  Slate, 16 Oct., 2004. The Camel.  Parks and Recreation, season 2, episode 9, NBC, 12 Nov., 2009. Young, Robert Louis. Understanding Misunderstandings: A Practical Guide to More Successful Human Interaction. University of Texas Press, 1999. Yule,  George. The Study of Language. 4th ed., Cambridge University Press, 2010.

The Beginning Of The Global Financial Crisis Finance Essay - Free Essay Example

Sample details Pages: 20 Words: 5882 Downloads: 2 Date added: 2017/06/26 Category Economics Essay Type Research paper Did you like this example? The stock price plunge and the severe credit crunch we are watching today in the global financial markets are byproducts of the developments in the US six years ago. In late 2001, fears of global terror attacks after 9/11 shook an already struggling US economy, one that was just beginning to come out of the recession induced by the bursting of the dotcom bubble of late 1990s. In response, during 2001, the Federal Reserve, the US central bank, began cutting interest rates dramatically to encourage borrowing, which spurred both consumption and investment spending. As lower interest rates worked their way into the economy, the real estate market began to get itself into frenzy. The number of homes sold and the prices they sold for increased dramatically, beginning in 2002. At the time, the rate on a 30-year fixed rate mortgage was at the lowest levels seen in nearly 40 years. Subprime lending and similar mortgage originations in the US rose from less than 8 percen t of all mortgages in 2003, to over 20 percent in 2006. The crisis began with the bursting of the US housing bubble and high default rates on subprime and adjustable rate mortgages, beginning in approximately 2005-2006. For a number of years prior to that, declining lending standards, an increase in loan incentives such as easy initial terms, and a long-term trend of rising housing prices had encouraged borrowers to assume difficult mortgages in the belief they would be able to quickly refinance at more favorable terms. However, once interest rates began to rise and housing prices started to drop in 2006-2007, in many parts of the US, refinancing became more difficult. Default and foreclosure activity increased dramatically as easy initial terms expired, home prices failed to go up as anticipated, and adjustable rate mortgage interest rates reset higher. Foreclosures accelerated in the United States in late 2006 and triggered a global financial crisis through 2007 and 2008. Initially the companies affected were those directly involved in home construction and mortgage lending. Financial institutions, which had engaged in the securitization of mortgages, fell prey subsequently. An Overview The initial  liquidity crisis  can in hindsight be seen to have resulted from the incipient  subprime mortgage crisis. One of the first victims outside the US was  Northern Rock, a major British bank.  The banks inability to borrow additional funds to pay off maturing debt obligations led to a bank run  in mid-September 2007. The highly  leveraged  nature of its business, unsupportable without fresh infusions of cash, led to its takeover by the British Government and provided an early indication of the troubles that would soon befall other banks and financial institutions. Excessive lending under loosened  underwriting  standards, which was a hallmark of the  United States housing b ubble, resulted in a very large number of  subprime mortgages. These high-risk  loans  had been perceived to be mitigated by  securitization. Rather than  justifying  the risk, however, this strategy appeared to have had the effect of broadcasting and amplifying it in a  domino effect. The damage from these failing securitization schemes eventually cut across a large swath of the housing market and the housing business and led to the subprime mortgage crisis. The accelerating rate of  foreclosures  caused an ever greater number of homes to be dumped onto the market. This glut of homes decreased the value of other surrounding homes which themselves became subject to foreclosure or abandonment. The resulting spiral underlay a developing financial crisis. Initially the companies affected were those directly involved in home construction and mortgage lending such as Northern Rock and Countrywide Financial. Financial insti tutions which had engaged in the  securitization of mortgages  such as  Bear Stearns, Indy Mac Bank, and Fannie Mae  and  Freddie Mac,  then fell prey. It then began to affect the general availability of credit to non-housing related businesses and to larger financial institutions not directly connected with mortgage lending. At the heart of many of these institutions portfolios were investments whose assets had been derived from bundled home mortgages. Exposure to these mortgage-backed securities, or to the  credit derivatives  used to insure them against failure, threatened an increasing number of firms such as  Lehman Brothers,  AIG,  Merrill Lynch, and  HBOS. Development of the global financial crisis The development of the global financial crisis is a result of a number of complicated and interrelated factors. Starting with the downturn of the housing bubble in the US economy, the fall in the financial stability in the US, and the rising commodity prices, all of the factors, in one way or other, has initiated the crisis. As stated by the United Nation in its Conference on Trade and Development, and in its Trade and Development Report 2008, the major factors for the crisis are: 1. The bursting of the housing bubbles in the US and in other large economies. 2. The global fallout due to the financial crisis in the United States. 3. The Soaring commodity prices. 4. Increasingly restrictive monetary policies in a number of countries. 5. Stock market volatility. 1) The bursting of the housing bubble in the US With the start of the new millennium, American housing sector has been on the move. The housing sector in the U.S. was in a boom. A combination of low interest rates and large capital inflows from outside the U.S. created a surplus of loanable funds and easy credit for many years. Subprime borrowing also was a major contributor to an increa se in home ownership rates and the demand for housing as the owners can easily borrow money to buy houses. The overall US home ownership rate increased from 64  percent in 1994 (about where it was since 1980) to a peak in 2004 with an all time high of 69.2  percent. This demand helped increase the housing prices and increased consumer spending. Between 1997 and 2006, US household debt as a percentage of income rose to 130% during 2007, versus 100% earlier in the decade people were spending more than their income. Overbuilding during the boom period eventually led to a surplus inventory of homes, causing home prices to decline beginning in the summer of 2006. With the assumption that housing prices would still continue to appreciate, many subprime borrowers obtain adjustable-rate mortgages (ARMs), after failing to pay. Once housing prices started depreciating moderately in many parts of the US, refinancing became more difficult. Some homeowners were unable to re-fin ance and began to default on loans as their loans reset to higher interest rates and payment amounts. An estimated 8.8 million homeowners have zero or negative equity as of March 2008, meaning their homes are worth less than their mortgage, nearly 10.8% of total homeowners. This provided an incentive to walk away from the home, despite the credit rating impact. Increasing foreclosure rates and unwillingness of many homeowners to sell their homes at reduced market prices have significantly increased the supply of housing inventory available. The sales of new homes dropped by 26.4% in 2007 compared to the previous year. Nearly four million unsold existing homes were for sale, including nearly 2.9 million that were vacant. This excess supply of home inventory placed significant downward pressure on prices. As prices declined, more homeowners were at risk of default and foreclosure. U.S. housing prices had fallen approximately by 18% from their 2006 peak by May 2008. Subprime lend ing and its market During the boom, the lenders were also willing to lend money to the risky borrowers. Subprime lending is the practice of making loans to borrowers who do not qualify for market interest rates owing to various risk factors, such as income level, size of the down payment made, credit history, and employment status. They were taking high risk, only in expectation of higher return. The value of U.S. subprime mortgages was estimated at $1.3 trillion as of March 2007, with over 7.5 million first-lien subprime mortgages outstanding. Approximately 16% of subprime loans with adjustable rate mortgages (ARM) were 90-days delinquent or in foreclosure proceedings as of October 2007, roughly triple the rate of 2005. By January 2008, the delinquency rate had risen to 21% and by May 2008 it was 25%. Subprime ARMs only represented 6.8% of the loans outstanding in the US, yet they represented 43% of the foreclosures which started during the third quarter of 2007. During 2007, nearly 1.3 million properties were subject to 2.2 million foreclosure filings, up 75% respectively from the previous year 2006. More homeowners continued to receive foreclosure notices, with one in every 519 households receiving a foreclosure filing in April 2008. The estimated value of subprime adjustable-rate mortgages (ARM), resetting at higher interest rates, is U.S. $400 billion for 2007 and $500 billion for 2008. Reset activity is expected to increase to a monthly peak in March 2008 of nearly $100 billion, before declining. Securitization practices Securitization is a structured finance process in which assets, receivables or financial instruments are acquired, classified into pools, and offered as collateral for third-party investment. There are many parties involved. Traditionally, banks lent money to homeowners for their mortgage and retain the risk of default, called credit risk. However, due to this financial innovation called securitization, the credit risk is pas sed onto other potential investors. The securities that the investors purchase are called mortgage backed securities (MBS) and collateralized debt obligations (CDO). In exchange for purchasing MBS or CDO and assuming credit risk, third-party investors receive a claim on the mortgage assets and related cash flows, which become collateral in the event of default. MBS and CDO asset valuation is complex and related fair value accounting is subject to wide interpretation. Rising mortgage delinquency rate had reduced demand for such assets, lowering the price. Banks and institutional investors had recognized substantial losses as they revalue their MBS downward. Several companies that borrowed money using MBS or CDO assets as collateral have faced margin calls. Major investment banks and other financial institutions had taken significant positions in credit-derivative transactions, some of which served as a form of credit default insurance. Due to the effects of the risks above, the financial health of investment banks had declined, potentially increasing the risk to their counterparties and creating further uncertainty in financial markets. As can be seen from the above details, a number of factors combined to initiate the financial crisis from this housing debacle. The boom resulted in confidence of the consumers in the housing sector. There was overbuilding of houses and building up of inventories. There were speculators investing in the housing sector. There was mortgage fraud. But as the mortgage rate had risen (due to the increasing demand) and people were unable to pay, there were defaults on mortgages. There was then refinancing of these mortgages, and securitization of the unpaid mortgages. But the continuous fall in the price of the house (due to less demand and excess supply) eventually surpassed all expectation. The value of the houses had gone down below the value of the mortgage. There was a big hole in the financial institutions which primari ly engaged in sub-prime lending. All of it can be blamed to one simple act. People were consuming more than what they were earning. 2) The global fallout due to the financial crisis in US With increase in globalization, the world is now an inter-connected system. All the countries are connected in one way or another. So if one country is affected, then the other countries can also expect some consequences. Just like, if one component of a system is down, then the whole system will collapse. Exactly the same happened. With the turmoil in the American financial system, the other countries experienced volatility to some extent. The major impact was on the stock market. The international trade was also affected. But the main cause lies in the root that all the economies in the world are interconnected with one another. Especially the U.S. economy is linked with most of the major economies in the world. Any impact on U.S. economy will affect the world economy. 3) The Soaring com modity prices Commodity prices have been on the rise from the year 2000 onwards. This mainly is due to the spending power of the people. The standard of living has increased in most of the countries, leading to increased spending. People were consuming a lot. The economy was booming. With increase in output production, there was economic growth. More countries were prospering. But with the growth, there was added inflation in the world economy. With higher consuming and spending pattern, there is increase of money supply in the economy, inflating the inflation rate. In 2008, the rise in the price of the commodities was way too much. The price of oil reached a peak of $147 per barrel. The price of rice, wheat, corn, all went up many folds in the current year. Raw material cost also increased. Rise in inflation has been most in 2008. No wonder people all around the world have been struggling to live a good healthy life. Much of the income are being spent on consuming necessity p roducts, leaving only a little portion (or none) of the income as savings. The financial crisis just hit at a time when people were struggling to survive with their normal salary. 4) Monetary policies Central banks are primarily concerned with managing monetary policies; they are less concerned with avoiding Asset Bubbles, such as the housing bubble and dot-com bubble. Central banks have generally chosen to react after such bubbles burst to minimize collateral impact on the economy, rather than trying to avoid the bubble itself. This is because identifying an asset bubble and determining the proper monetary policy to properly deflate it are a matter of debate among economists. A contributing factor to the rise in home prices was the lowering of interest rates earlier in the decade by the Federal Reserve, to diminish the blow of the collapse of the dot-com bubble and combat the risk of deflation. From 2000 to 2003, the Federal Reserve of U.S. lowered the federal funds rate t arget from 6.5% to 1.0%. The central bank believed that interest rates could be lowered safely primarily because the rate of inflation was low and disregarded other important factors. The Federal Reserves inflation figures, however, were flawed. Richard W. Fisher, President and CEO of the Federal Reserve Bank of Dallas, stated that the Federal Reserves interest rate policy during this time period was misguided by this erroneously low inflation data, thus contributing to the housing bubble. So the policies persuaded by the central banks will be limited to the extent to which it is affected to impact the economy. 5) Stock market volatility The stock market has always been a volatile instrument. People react to speculations and react accordingly in the stock market. The market fluctuates with relevant information. There is a high degree of correlation between the market and other financial activities around. So with any sort of negative environment looming around, the market can be expected to be negatively affected. The volatility of the market can only be blamed. All these factors led to the birth of the global financial crisis. It started from the US and spread across most of the major world economies. Bailout of the financial system As a response to the financial crisis which has affected the whole worlds economy, the US government decided to implement the Bailout of the financial system. On 17 September 2008, Federal Reserve Chairman Ben Bernanke advised Secretary of the Treasury, Hank Paulson, that a large amount of public money would be needed in order to stabilize the financial system. On 19 September 2008, the U.S. government announced a plan to purchase large amounts of illiquid, risky mortgage-backed securities from financial institutions, which is estimated to involve at a minimum of $700 billion of additional commitments. This plan also included a ban on short-selling of financial stocks. However, the plan was vetoed by the US congress because some members rejected the idea that the taxpayers money is used to bail out the Wall Streets investment bankers. The stock market plunged as a result; the US congress amended the bailout plan and finally passed the legislation. Unfortunately, the market sentiment continuously deteriorated and the global financial system almost collapsed. While the market turned extremely pessimistic, the British government launched a 500 billion pounds bailout plan aimed to injecting capital into the financial system. The British government nationalized most of the financial institutions in trouble. Many European governments followed as well as the US government. What is this Bailout process intended to do? ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Improve liquidity: Through the money that has been injected into the economy by the purchase of stocks of the financial institutions, the government has intended to make those institutions recover from the existing crisis. The added cash has helped these financial institutions improve their liquidity since they are now more capable of paying off their debt. ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Investor confidence: The worst hit institutions from the financial crisis included firms like Fannie Mae and Freddie Mac, Lehman Brothers, and, more recently, American International Group. These companies saw their access to liquidity and capital markets increasingly impaired and their stock prices drop sharply. Due to the bailout process several firms will have improved liquidity and since the U.S. government will have some authority over these firms, investors will have more confidence than before. This will certainly cease the bearish trends noticed in the shares of these institutions. ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Avoid Recession: The bailout process will have the same effect as an expansionary fiscal policy. The financial crisis has made a serious dent in the consumer confidence and unless the bailout takes place, this loss of consumer confidence would inevitably lead to a severe recession. Immediate market reactions When news of the bailout proposal emerged on September 19, 2008, the U.S. stock markets rose by approximately 3%. Foreign currencies corrected slightly after having dropped earlier in the month and the foreign stock markets also regenerated. The value of the  U.S. dollar  dropped compared to other world currencies after the plan was announced. The futures contract of oil spiked more than $25 a barrel during the day Monday September 22, ending the day up over $16. This was a record for the biggest one-day gain. Mortgage rates increased following the news of the bailout plan. Before the plan was announced, the 30-year  fixed-rate mortgage  averaged 5.78% in the week and for the week ending September 25, the average rate was 6.09%,  still far below the average rate during the  early 1990s recession, when it topped 9.0%. Impact on the financial i nstitutions The first major impact in the US financial system can be highlighted as the collapse of Bear Stearns in March 17, this year. Prior to this year, there have been downfall in the financial market, but majority of those downfall were due to bankruptcy of the sub-prime lending institutions. The rise and the burst of the housing bubble made sure that the sub-prime lenders and other lending institutions, that took a high degree of risk, were out of business. The fall of these institutions did reflect in the stock market, but the effect was not countable. There was no major downfall in the stock market in the previous year. However, things started to change with the beginning of this year. With the cracks in the financial system, there was clear evidence of a financial meltdown, at the beginning of the year. Stock markets were showing a higher degree of volatility, the first of which was observed on the 21st of January. On March 17th, the investment bank Bear Stearns coll apsed; its stock price fell from $154 to $3! JP Morgan Chase, with agreement from US government, took over the soaring company. US government earlier injected $30 billion to prevent a default by Bear Stearns, but that did not help much. IndyMac Bank, the largest mortgage lender in the US, also collapsed on July. Till the beginning of September of 2008, the financial system was able to withstand the inner cracks in its system. However, on September 7th, Fannie Mae and Freddie Mac was rescued by the US Treasury; $200 billion was injected into the financially stricken mortgage giant. On September 15th, the largest investment bank in America, Lehman Brothers filed for bankruptcy. Simultaneously, Merrill Lynch was bought by the Bank of America. There was simply lack of liquidity to meet the customers deposit withdrawal, as these large banks lost heavily from the real-estate mortgage saga. This chain of action not only crashed the whole financial system in the country, but also initiat ed the downtrend in other countries also. In America the stock market plunged deeply with the fall of the two giants. The largest insurance company in the world, American Insurance Group (AIG), saw its share plunge 70%. On September 17th, the US Federal Reserve rescued AIG by injecting $85 billion, and becoming 79.9% stockholder in the company. The two remaining investment banks, Morgan Stanley and Goldman Sachs, saw their share price rocket down by 24% and 14% respectively. With the pressure of sustaining in the market, both the companies shifted to Holding companies in September 21st. The biggest bank failure in history occurred on September 25th when JP Morgan Chase agreed to purchase the banking assets of Washington Mutual. It is not tough to predict the impact on stock market. With so many large corporations failing one after another, the people of America lost their confidence in the security market. Dow-Jones, NYSE, all other indexes were in downward trends. The fall in the indexes was the highest for a good number of years. The whole of the securities market crashed, as the investors tried to take out their money from the market. All around the world the stock market tumbled. European and Asian stock market plunged between 3% and 5%. In Europe, the Paris CAC 40 index was down 4.32%, London had shed 3.47%, Frankfurt revealed a loss of 3.35% and Madrid dropped 3.18%. The British and the US stock markets had struck the lowest levels for about two years. In Asia, Taiwans stock was down 4.09% and Philippine shares were 4.2% down. Sydney was down 1.8%. Singapore closed down 3.27% and Indian shares tumbled 5.19%. These impacts were a mere reflection of the fact that the world is inter-connected; there is globalization in the world economy. The fall in stock market continued in most of the countries in the following days. As the financial system of the US crashed, other developed countries focused on their economy; especially in their banking secto r. With the $700 billion bail-out plan in USA taking place, other major developed countries also went for the same strategy. There was now crisis in European banks! The biggest bank in Iceland, Kaupthing filed for bankruptcy; Government took its control. Soon Iceland had to nationalize the 2nd largest bank, LandsBanki, as well as the 3rd largest bank, Glitnir; all within the 1st week of October. Following the debt crisis in Iceland, most of the European banks were under pressure from depositors who were trying to withdraw their money. On the 6th of October, FTSE 100 recorded its biggest ever one-day point fall; it ended 391.1 points lower, down 7.8%. There was further drop in the 10th of October. None of the blue chip stock ended in positive territory. Banks were the biggest losers. The German stock market also experienced the highest fall, owing to the fact that the German banks had investment in the US deregulated banks. In Asian market, the same scenario can be seen. Tokyo suffered the biggest drop in two decades with insurance company going bankrupt as the first casualty. It suffered the biggest daily drop for two decades. The Nikkei was down 9.6% on the 10th of October. Toyota announced fall in sales and Sony announced fall in expected profit the following day; Nikkei went even further down, below 8000 points, for the first time in 22 years. The entire Asian markets plunged as the investors kept on dumping the shares. There was further impact on the European market following the Asian plunge. Londons FTSE 100 index nosedived 10.20 percent to as low as 3,873.99 points, the first time below 4000 points in 6 years. There was more than 10% fall in Frankfurt and Paris. The Dow Jones index plunged 7.33%, closing below 9000 points for the first time, since 2003. There was $68 billion rescue plan by Berlin; and other EU countries followed the pattern. Britain rushed out a package worth  £500 billion to head off a banking collapse. All the money inje cted to improve the financial instability and gain the confidence of the investors. European governments also started to give guarantee on the public savings, up to the total amount even. Lending between banks has almost dried up. Major central banks in the Europe slashed interest rates assist in solving liquidity crisis. The measures taken by the EU countries seemed to work out in the short run as stock market recovered gradually. Bank of Japan injected $50 billion (approximately) in their banking sector. Other countries in the Asian zone went for guarantying savings and deposits. The Asian market also gained in the following days. Future scenarios The economic downturn which began in 2007 and will continue through 2009 is expected by many analysts to be amongst the most severe in the past 100 years. While the scale of the downturn remains uncertain, the full impact on the real economy has not yet been felt and more bad news is still to come. Although a global rebound is e xpected in 2010, even emerging economies have proven considerably more vulnerable than previously believed, demonstrating the integrated nature of global financial and credit markets. Real GDP growth in more advanced markets such as the USA or UK is projected to rebound from 2009 and stabilize by 2012. Meanwhile, the longer-term trend in key developing markets such as China or India will be a gradual slowdown in growth over the same period. Inflation forecasts are clouded with uncertainty and commodity prices especially those of oil will play a key role in determining the growth outlook for most countries. Regulation in the financial and banking markets is likely to be overhauled in order to prevent a similar crisis reoccurring in the future. Government intervention is set to dramatically alter the banking and financial landscape, at least in the medium-term, and prompt ongoing volatility and uncertainty amongst businesses and consumers worldwide. The financial crisis and the developing world For the developing world, the rises in food prices as well as the knock-on effects from the financial instability and uncertainty in industrialized nations are having a compounding effect. High fuel prices, soaring commodity prices together with fears of global recession are worrying many developing country analysts. Summarizing a United Nations Conference on Trade and Development report, the Third World Network notes the impacts the crisis could have around the world, especially on developing countries that are dependent on commodities for import or export: Uncertainty and instability in international financial, currency and commodity markets, coupled with doubts about the direction of monetary policy in some major developed countries, are contributing to a gloomy outlook for the world economy and could present considerable risks for the developing world, the UN Conference on Trade and Development (UNCTAD) said Thursday.ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ C ommodity-dependent economies are exposed to considerable external shocks stemming from price booms and busts in international commodity markets Market liberalization and privatization in the commodity sector have not resulted in greater stability of international commodity prices. There is widespread dissatisfaction with the outcomes of unregulated financial and commodity markets, which fail to transmit reliable price signals for commodity producers. In recent years, the global economic policy environment seems to have become more favorable to fresh thinking about the need for multilateral actions against the negative impacts of large commodity price fluctuations on development and macroeconomic stability in the world economy. Financial Crisis Likely impact on Bangladesh Bangladeshs economy relies heavily on garment exports. This is where the main risk of global financial turmoil lies. The financial sector especially the stock market is less prone to the global financial cri sis because of its lack of link with the global financial system. According to most scholars, Bangladesh is relatively insulated from the financial side, but vulnerable to potential global economic slowdown, particularly in the US and EU. The foreign exchange reserves of Bangladesh Bank and commercial banks have limited exposure to the securities markets and banking system risk in the US and EU. Foreign capital flows are largely in the form of concessional official lending. FDI and foreign portfolio investments are small. However, Bangladeshs economy relies heavily on garment exports. This is where the main risk lies. Remittances may also be vulnerable. On the positive side, import payments may be favorably affected as a result of declining commodity prices, particularly oil and food. The export sector is potentially the most vulnerable in Bangladesh since it depends heavily on US and EU economies. The readymade garment (RMG) industry accounts for over three quarters of exp ort earnings and depends almost entirely on US and EU markets. There is growing concern that a deep and prolonged recession in the US and EU may reduce consumer spending significantly across the board, thus undermining the demand for Bangladeshi exports. BGMEA and BKMEA have indicated that growth in export orders was slow in the first quarter of Fy08. IMF has projected that income growth in Bangladeshs export markets will decline from 1.5 percent in 2008 to 0.5 percent in 2009. If this happens, consumer spending will decline. Although demand for Bangladeshs exports is not too sensitive to income, export prices may decline and this could have significant effects on our export earnings even if export volumes remain largely unaffected. There is unlikely to be any direct immediate impact on remittances. Remittances in Bangladesh proved to be resilient during previous financial crises in the world. The bulk (over 60 percent) of Bangladeshs remittances come from the Middle East, and less than one-third come from the US, UK and Germany. Strong remittance growth (44 percent) has continued in the first quarter of FY09. However, if a deep and protracted recession ensues in the US and EU, then the Middle-Eastern economies are likely to be adversely affected. Stock markets in important Middle-Eastern economies have already started to crash. Even if the current nearly $8 billion level of remittances is sustained, it would be challenging to maintain its growth momentum since 2001 if the world economy remains depressed for an extended period. Official aid flows may take a hit. Governments in rich donor countries are doling out massive amounts to rescue their domestic financial institutions. They may look for savings from other sources to finance these bailouts. Foreign aid budget is relatively easy to cut since the foreign aid recipients do not count as their voters. Import is probably the one channel through which Bangladesh may benefit. Import payments in Au gust have reportedly been US$531 million lower than import payments in July. This decline in import payments is mainly due to the fall in prices of petroleum products, wheat and edible oil. Record high oil prices last year raised import payments to over US$20 billion in FY08, compared to slightly over US$15 billion in payments in FY07. The gains on account of reduced import payments can be sizable. Bangladeshs remarkable resilience so far to this ongoing global financial crisis and slowing growth in high-income countries is in large part because of the countrys relative insulation from international capital markets and the negligible role played by foreign portfolio investors in the country. This resilience also derives from sound policy framework and macroeconomic fundamentals. However, investor psychology is much less insulated than the capital market itself, as demonstrated by the sudden increase in volatility in Dhaka and Chittagong Stock Exchanges Sunday (October 12). Th e overall financial leverage in Bangladesh is low. Unlike the global financials, Bangladeshs banking system has no toxic derivative engagements. Barring a prolonged slowdown in the world economy leading to a drastic reduction in RMG exports, it is highly unlikely that the external shocks will increase the risk of asset quality problems or precipitate a credit crunch in Bangladesh. This is due to Bangladeshs low level of external debt, robust international reserves, and limited direct exposure to the international financial system. Low level of global integration shields Bangladesh from the global financial turmoil. However, Bangladesh is far from being completely insulated. Its heavy dependence on US and EU markets for merchandize exports is a real source of vulnerability as are remittances and foreign aid, though may be to a lesser extent. There is therefore no alternative to stronger policy vigilance and preparedness. Policy makers have to make sure that markets do not panic by continuously providing evidence on the economys resilience in various sectors. They must proactively monitor the channels through which the global financial turmoil may start creeping into the Bangladesh economy and take appropriate mitigation measures. Inflation has recently been the biggest macro policy challenge in Bangladesh. With the aggravation of the financial turmoil we have seen a sharp decline in global commodity prices. This makes the inflation battle a little easier for Bangladeshi policymakers. But new policy dilemmas are likely to emerge if export earnings begin to slow down and currencies of Bangladeshs competitor countries depreciate. This will put exchange rate policy under pressure to maintain export competitiveness. Market interventions aimed at depreciating the currency will dilute through declining international commodity prices to domestic prices and, consequently, undermine the objective of reducing inflation from its current double-digit level. C ONCLUDING REMARKS As a matter of fact, a number of areas requiring policy intervention directed towards raising the competitiveness of Bangladeshs export-oriented sector and enhancing trade related capacity building have already been identified and put on the table. The task now is to seriously get on with the business of implementing the agenda. The upshot of the above discussion is to reemphasise that in the coming months and years Bangladeshs increasingly globalised economy will, of necessity, have to be adequately prepared to face the consequences of the fluctuating fortunes of the global economy. The current crisis facing Bangladeshs export sector should transmit appropriate signals to the countrys policy makers to the effect that greater integration into the global economy is not an unqualified blessing. Bangladesh cannot afford to be a passing taker in the globalisation process. We must strengthen our capacity to participate in global integration to a point where it can im prove the terms on which we participate in this process. The price to be paid from globalisation will rise in direct proportion to the degree of the countrys lack of preparedness. A different school of thought According to us the global financial might not decrease our RMG export and in the contrary increase it. Bangladesh specializes in producing garments that are very low priced clothes that are for everyday use, which are not the high end designer clothe type. If we consider these products to be inferior goods whose demand decreases as income increases it good news for Bangladesh. Because of the global financial crisis if peoples income in the developed countries decline, their purchasing power will also decrease implying that they will shift their demand towards the cheap, inferior products the products that Bangladesh is exporting. As a result the volume of export from Bangladesh should increase and ultimately help our economy to grow better even during the global financi al crisis. To capture this golden opportunity Bangladeshi government must intervene and devaluate our currency so that export becomes more lucrative since foreign currencies, such as the USD is getting weaker in comparison to Bangladeshi Taka. But there is a cost for everything. In one hand when devaluating our currency can increase our exports it will also increase our inflation and make life difficult for our citizens. It is up to the government to decide the costs and benefits of such a policy which will be beneficial to our countrys economic health in the long run. Don’t waste time! 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