The influence of Covid-19 on financial system Business Essay

The Influence of COVID-19 on the Financial System and Stock Market
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The Influence of COVID-19 on the Financial System and Stock Market
Introduction
The beginning of the coronavirus pandemic led to an unprecedented level of disruption in financial systems not only in the United States but also the entire global economy. With countries slipping into lockdowns to prevent the spread of COVID-19, economies took a hit with large firms forced to shut down. The closure of businesses that contribute immensely to stabilize the financial systems led to a decline in global trade (Karabag, 2020). Therefore, the financial systems have been widely affected by COVID-19 with uncertainties on when the normal resumption of businesses can occur. The increasing cases of deaths and new infections further increase the uncertainty hence, world economies continue to experience a decline in economic activities.
Effect on Financial systems
COVID-19 has stressed the United States' financial system mainly due to the market strain caused by uncertainty. The market has continually become volatile, with prices fluctuating unevenly, thus disrupting regular businesses globally (Adrian & Natalucci, 2020). This volatility has further led to the deterioration of market liquidity, causing unstable prices in previously stable markets such as the U.S. treasury market. The consequences of such uncertainty have led to declines in prices of high-risk assets, bonds, and equities, leading to losses by investors and a slump in the number of people willing to invest.
The stock markets have witnessed significant shifts during this period, with the volatility levels surpassing the previous instances of recession experienced in 2008. With technology at an advanced stage in the world today, information spreads quickly across the globe. Data plays an essential role in the stock market, determining the rate at which people buy and sell their stocks (Karabag, 2020). Therefore, with the unprecedented level of information spreading involving and situations around the COVID-19 pandemic, there are numerous daily jumps in the stock market, leading to increased volatility. Furthermore, the disruption of global supply chains that play a massive role in the market prices explains the volatility in the stock market. The sudden disruptions in these supply chains brought about by the COVID-19 pandemic show the vulnerability of global systems. The continued restrictions put on maritime and air transport have impacted the flow of goods into and outside the United States, leading to surplus and shortages of products across different parts of the world. With companies unable to export their goods and others unable to import goods into the country, prices fluctuate in the market to unprecedented levels affecting stock prices. Consequently, the reduced economic activity in the United States has impacted market decisions across markets.
As a result, central banks across the globe have resorted to implementing measures to save the economy. Firstly, monetary policies have been eased through the cutting of policy rates with the United States, which is a global economic powerhouse forced to cut the rates to significantly low levels (Adrian &...