Critically Analyse How the Government Debt Problems Initially Faced by a Few Relatively Small Economies Could Trigger Such a Wide Impact in Financial Markets
Since the Greece's debt crisis happened, the Euro zone has to confront with a huge sovereign debt crisis, like governments' debt increased, bond yield spreads widened, Euro exchange rate fell as well, which caused that the whole international financial markets gradually lost the confidence. The purpose of this essay is to discuss the impact of this crisis both on foreign exchange and derivative markets. And the rest words is to analyse several possible reasons why this small economy could trigger such a wide impact on global financial markets, in which contagion can …show more content…
Graph 6 5 years’ Sovereign CDS risk premium and Sovereign credit rating in different countries.
Another impact on derivation market is the Futures and Options. Traders and hedge funds had bet nearly $8bn (£5.1bn) to against the euro, amassing the biggest ever short position in the single currency on fears of a euro-zone debt crisis. Figures from CME(Chicago Mercantile Exchange) illustrates that investors had enhanced their positions against the euro to record levels. This phenomena demonstrates that investors were losing confidence in the single currency's ability to withstand any contagion from