ANALYSIS OF THE ASIAN CRISIS

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:

1. Commercial banks and other depository institutions: transactions involve buying/selling of bank deposits in different currencies for investment.

1. Non-bank financial institutions (pension funds, insurance funds) may buy/sellforeign assets.
2. Private firms: conduct foreign currency transactions to buy/sell goods, assets or services.
3. Central banks: conduct official international reserves transactions.