ANALYSIS OF THE ASIAN CRISIS: Difference between revisions
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==CAUSES OF THE ASIAN CRISIS== | ==CAUSES OF THE ASIAN CRISIS== | ||
=== | ===Heavy investment in highly speculative in real estate ventures.=== | ||
=== | ===There was a decrease in export due to the appreciation of the dollar against the yen.=== | ||
===Overbuilding of real estate.=== | |||
===Decrease in stock prices due to the drop in real estate prices.=== | |||
===The deterioration in the balance sheet of banks due to increasing loan losses.=== | |||
===Adverse selection and moral hazard problems.=== | |||
===Increase in interest rates.=== | |||
===Increase in uncertainty.=== | |||
===Unsustainable current account deficits.=== | |||
===Over-dependence on short-term foreign funds.=== | |||
===Poor regulation of the economy.=== | |||
===Over-inflated asset prices.=== | |||
===Macroeconomic policy: Fixed exchange rates.=== | |||
Revision as of 23:02, 9 April 2006
INTRODUCTION
- An analysis of the East Asian crisis.
OVERVIEW OF EXCHANGE RATES
- Exchange rates are quoted as foreign currency per unit of domestic currency or domestic currency per unit of foreign currency.
- Exchange rate allows us to denominate the cost or price of a good or service in a common currency.
- Depreciation is a decrease in the value of a currency relative to another currency.
- Appreciation is an increase in the value of a currency relative to another currency.
THE FOREIGN EXCHANGE MARKET
- It is the financial market where exchange rates are determined.
- Participants of the foreign exchange market are:
- Commercial banks and other depository institutions
- transactions involve buying/selling of bank deposits in different currencies for investment.
- Non-bank financial institutions (pension funds, insurance funds) may buy/sellforeign assets.
- Private firms: conduct foreign currency transactions to buy/sell goods, assets or services.
- Central banks: conduct official international reserves transactions.
