A situation in which the value of financial institutions or the value of their assets drops rapidly.” A financial crisis is often associated with a panic or a bank run that may collapse whole financial system of economy. The investors sell off assets or withdraw money from savings accounts with the expectation that the value of those assets will drop if they remain at a financial institution. Financial crisis means downfall in the value of the country currency and financial institutions or market mechanism as a result country may suffer from recession.

‘Financial Crisis’:

A financial crisis can come as a result of institutions or assets being overvalued, and can be worsened by investor behavior.

One example of a currency crisis occurred in Russia in 1998 and led to the devaluation of the ruble and the default on public and private debt. Currency crises such as of Russia’s may emerge from variety of economic conditions, such as large deficits and low foreign reserves. These crises may have effect on one’s country at times when its neighboring countries are experiencing financial crisis.

THE RUSSIAN DEFAULT: A BRIEF HISTORY

After six years of economic reform in Russia, privatization and macroeconomic stabilization had experienced some limited success. Yet in August 1998, after recording its first year of positive economic growth since the fall of the Soviet Union, Russia was forced to default on its sovereign debt, devalue the ruble, and declare a suspension of payments by commercial banks to foreign creditors.

“What caused the Russian economy to face a financial crisis after so much had been accomplished In April 1996”? Russian officials began negotiations to reschedule the payment of foreign debt inherited from the former Soviet Union. These negotiations were a major step toward restoring investor confidence. Apparently 1997 seemed poised to be a turning point toward economic stability.

The following positive effects were on economy: