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How Market Volatility Triggers a Domino Effect in Financial Services

How are businesses in the financial services sector coping with market volatility and strategizing to strengthen their resilience and prevent a domino effect? 

In a world where pandemics can cause financial disruptions, it’s important to understand the domino effect. By learning from history and using modern strategies, financial institutions can not only survive but also thrive during market volatility. 

In this article revolves around how market volatility is interconnected and how the term domino effect is termed in the financial sector. It involves a crash in the stock market, Drought, a giant bank collapse, supply chain disruptions, sudden oil price hikes, wars, pandemics, and any other natural or manmade calamities that impact economies, resulting in a domino effect. 

Understanding the Domino Effect 

Our world is deeply interconnected. This means that when an unexpected event happens in one part of the world, it can have an impact on other parts of the world. One example of this is the collapse of Lehman Brothers in the US in 2008, which affected economies around the world. This type of occurrence is often called the domino effect. 

Historical Snapshots: Volatility Unleashed 

There have been so many incidences that took place in history, and the market has recorrected itself. For example, in 1987 stock market crashed, and in 1997, the Asian crisis created a domino effect on world economies. 

Silicon Valley Bank: Unveiling Modern Ripples 

Recently, we all have seen the Silicon Valley Bank (SVB) crisis, where a reputed bank collapsed, and the world has observed a domino effect of market volatility in a large part of the USA and Europe.  

Similarly, Covid-19 also disrupted the supply chains of the world and ruined the health sector. The pandemic spread across the globe and impacted the economic development of the world. Many small and medium sectors faced financial crunch due to the disturbed business network.  

The term “market volatility” is more than just a buzzword; such terms do not change the reality and unwanted phenomena of domino effect. When worldwide, any incident triggers a domino effect with far-reaching consequences on the more significant economies, it results in poor and least-developed countries also facing disruption in their respective economies.  

Adapting in Unpredictable Times 

The intricate web of the financial services sector is susceptible to the domino effect of market volatility. As history demonstrates, events like the Lehman Brothers collapse or the Silicon Valley Bank incident are testaments to the interconnectedness of global financial systems.  

While the past provides valuable insights, the present-day relevance of the domino effect must be considered. Strategies like ABM, sustainable supply chain, and robust risk mitigation plans can help businesses better prepare and navigate the unpredictable waters of the financial world more confidently.

 

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