This per the suggestions of the basic economic theory it is important that there should be the adjustment in the equilibrium prices in order to provide an equal supply of the demand and there should be no arise of the rationing. Another theory related to the financial crises is the theory of currency crises which states that in the famous international-finance trilemma, a country can select only two or three basic goals amongst the free international flow of the capital, autonomy in the monetary sector and the stability in the exchange rate. These theories have been quite useful and relevant for the purpose of the prevention of the financial crises at the international level.
Prevention of the Crises at the international and National Level
A number of nations in the recent times has experienced a major avert in terms of trade in order to have the confidence of the investors or due to the crises in the domestic financial system. Some of the main reasons for the financial crises includes:
- The prevalence of the weakness in the serious banking and financial sector.
- The fixed exchange rates without any kind of concomitant and variation in the monetary policies.
- The traditional macroeconomic fundamentals which may be in the form of the inflammatory monetary policies, the large fiscal deficits and the large deficits in the accounts.
- Weakness in the national balance sheets which includes the liabilities both at the short and the long term.