financial contagion

Financial contagion refers to the rapid spread of economic troubles from one market or country to others. This can happen when investors lose confidence and start selling off assets, leading to falling prices and financial instability beyond the initial problem area. Just like a contagious disease, where one person’s illness can affect others, in finance, a crisis in one place can trigger fears and reactions elsewhere, causing widespread financial distress. Understanding this phenomenon is crucial for policymakers and investors to mitigate risks in interconnected global markets.