EFFECT OF CORONAVIRUS ON GLOBAL ECONOMY

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

The recent COVID – 19 has impacted all financial markets worldwide in particular share prices trend dropped significantly and continuously. Among the financial markets experienced this situation is The Dow and S&P from the United States from America. Daily FT(2020, pg. 1) supported the fact stating that, “The Dow Jones, and S&P both of which take into account the share prices of a variety of companies in the US have dropped by over 20%”.

Another world evidence of the impact of the financial markets worldwide is from Nikkei who trades with Tokyo Stock Exchange. The trend of market price of Nikkei as well experienced the volatility of the share prices and mostly the dropping trend throughout since the outbreak of the COVID – 19 and becoming the pandemic to the whole world. Daily FT (2020, pg. 1) elaborated that, “Similarly, the Nikkei, which takes into account share prices of companies in the Tokyo Stock Exchange has also dropped significantly in the last few days”.

The world experiencing the closure of the financial markets can significantly go down of the share prices due to pandemic COVID – 19. The COVID – 19 has taken the financial markets to the quit different trading directions which will eventually impact the world economy. In particular, Colombo stock exchanges sometimes have closure of the business and price of shares to drop in a meaningful impact. Daily FT (2020, pg. 1) suggested that, “Even the Colombo Stock Exchange has seen almost a 9% drop in its All Share Price Index over the course of the last week, and has been forced to close trading three times during this week”.

Contrary to other different world financial markets, Literature revealed that the China financial markets remain strong and stable regardless of the present COVID – 19 pandemic. Xinhuan, (2020, pg. 1) reported this different and significant opinion in the world financial market, insisting that, “China’s financial market remains generally stable compared with overseas markets despite the spread of the novel corona virus (COVID-19)”.

Statement of the Problem

Globally, the COVID – 19 shock is severe even compared to the Great Financial Crisis in 2007–08. However, the impact of the COVID – 19 on the financial markets has never been researched.

Different Monetary International organisations and platforms have alerted that the recent COVID – 19 will have serious effects on the global economy and perhaps the effects will surpass the 2007/2008 world economic crises. World Economic Forum, (2020, pg. 1), insisted that, “Globally, the corona virus shock is severe even compared to the Great Financial Crisis in 2007– 08”.

Literature evidence revealed that the COVID – 19 had a significant impact on the financial markets worldwide. Indicators of the impact of the COVID – 19 to the financial  markets have been witnessed in different financial markets in the world, In particular USA to the Dow and the S&P the trading rates trends dropped significantly to respond to the COVID -19 situation in America and the world at large. Economy (2020, pg. 1) clarified in detail that, “By the time the day was over, the Dow and the S&P had experienced their biggest one-day drop since 1987. Lawmakers in Washington continued to work on an economic rescue package. They’re, of course, trying to respond to the impact of the corona virus pandemic”.

1.2 Objective of the Study:

1.  To examine the effect of corona virus on global oil price

2. To examine the effect of corona virus on global stock market
3. To examine the effect of corona virus on exchange rate instability

1.3 Research Questions

1.  What is the effect of corona virus on global oil price

2. What is the effect of corona virus on global stock market
3. What is the effect of corona virus on exchange rate instability

1.4 Hypotheses

1.  There is no significant effect of corona virus on global oil price

2. There is no significant effect of corona virus on global stock market
3. There is no significant effect of corona virus on exchange rate instability

1.5Significance of the Study

From the existing literature this study will generate new knowledge regarding the impact of the COVID – 19 on the financial market from 1st March to 25th March 2020 in China and  USA. Most importantly the study will be very useful to the Financial applied economics major study and support investors and decision makers in the governments of China and USA.

1.6  Scope of the study

The study was delimited to the effect of corona virus on global economy.

1.7  Limitation of the Study

       In every research work, it is likely that the researcher may encounter some limitations. The researcher encountered some challenges during the period of carrying out this research. Some of these challenges include the dearth of materials for a proper and effective research work constituted a major limitation.

EFFECT OF CORONAVIRUS ON GLOBAL ECONOMY

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