Asian Crisis
Essay Preview: Asian Crisis
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A country doesnt have to disclose the amount of foreign reserve it holds
Information held confidential by the IMF
IMF lender of last resort.
Provide government loans below market rates
The Role of the World Bank
75% vote required
the US has veto power
CURRENCIES IN CRISIS
Plain Talk: Its time to resume buying American
Its time to get back to buying American
In the forward market, when one currency is stronger (worth more), we say it is trading at a premium versus the other currency; and therefore the other currency is trading at a discount (worth less) in the currency pair
eg. spot: 1 USD = 58 INR; 3 month forward: 1 USD = 55 INR
forward market, INR is trading with premium
as long as theres a price difference between a spot and forward rate, one currency will be stronger than another
VIDEO: BASED ON BEST-SELLING BOOK “The Commanding Heights: The Battle for the World Economy”
Questions:
1. What were the causes of the Asian Financial Crisis?
2. What does a drastic reduced currency value mean for citizens of that nation? For other nations?
3. Based on this video, what should nations be doing now to lessen the chance for similar crises?
(the difference in pay in rural vs urban China) => the biggest in the world
early 90s
David Lee
left the country; now coming back
free-trade zone near Shanghai (no tariff)
china in the midst of transformation
China welcoming foreign investment
people left rural home to urban areas
largest wave of human migration in history
80% of worlds future economic growth are expected to occur in cities
teacher in rural area => move to urban
100/month => 3000/month
Singapore
“tiger economy” of Southeast Asia
since 1970s SEA had become world class exporters => Asian economic miracle => rapid growth (10% or more growth)
Tokyo, Japan
the worlds second largest economy
fallen into economy slump (were in bubble economy)
Japanese banks held 1 tril in debt
very closed economy => you dont see many foreigners
socialistic sector
competitive export sector (Sony, Toyota)
THE GLOBAL CONTAGION
Thailand
easy money, easy profit
90s => open up market
lower interest rates offered by banks
loans to Thai businesses tripled
Americans and Europeans encouraged inflow of money
banking system, securities laws were not well developed
Thai CB has kept inflation relatively high
IMF began to worry that Thailand was heading for a fall
Muang Thong Thani => built for 700,000 people; no one was moving in
finaced