Fina 370 internatonional financial management
Assignment 1: FINA 370
International Financial MGMT
Overview of the Asian Economy:
Asian economy prior to 1997 crisis could be described according to the theory of Flying Geese.
The lead goose, Japan well industrialized followed by its intensive labor suppliers, the four dragons (South Korea, Taiwan, China, and Singapore), the four tigers (Indonesia, Malaysia, Philippines and Thailand). They used to form the global supply chain and all of them used the US dollar as the benchmark currency.
Beginning of the Crisis:
2 July 1997, the Bank of Thailand (BoT) announces that the Thai baht which was pegged around 25 to the U.S. dollar for more than a decade will be allowed to float, due to the lack of foreign currency to support its fixed exchange rate. (Already used $33 billion in foreign exchange).
With the economic growth U.S. Dollar begins to rise and Asian pegged currencies moved accordingly. Exports become more expensive around the world, sales begin to fall, and deficit began to grow. Early 1997, investors like George Soros start to focus on Thailand and bet for Thai baht devaluation or collapse because Borrowing too much money.
Usually when “Big money” is betting against “small money” it fulfills the prediction. Moreover; major Banks worldwide followed Soros on his bet. The Thai Baht was under speculative attack.
Consequently, Government Thailand buys more and more bath with the dollar it keeps in its reserves to pay out speculators who wanted to cash out. Money goes out from Thailand and back to U.S => downward pressure on the currency value.
Contagion:
By the End of July, Thailand is forced to devalue the baht. Malaysia’s ringgit, Philippine’s peso, and Singapore’s dollar started to depreciate. In August, 1997, Thailand received $17 billion loan from IMF and Asian nations. The Thai government closed 42 finance companies and imposed tax hikes as part of the IMF 's insistence on austerity. Meanwhile, Indonesia abandoned the rupiah 's
International Financial MGMT
Overview of the Asian Economy:
Asian economy prior to 1997 crisis could be described according to the theory of Flying Geese.
The lead goose, Japan well industrialized followed by its intensive labor suppliers, the four dragons (South Korea, Taiwan, China, and Singapore), the four tigers (Indonesia, Malaysia, Philippines and Thailand). They used to form the global supply chain and all of them used the US dollar as the benchmark currency.
Beginning of the Crisis:
2 July 1997, the Bank of Thailand (BoT) announces that the Thai baht which was pegged around 25 to the U.S. dollar for more than a decade will be allowed to float, due to the lack of foreign currency to support its fixed exchange rate. (Already used $33 billion in foreign exchange).
With the economic growth U.S. Dollar begins to rise and Asian pegged currencies moved accordingly. Exports become more expensive around the world, sales begin to fall, and deficit began to grow. Early 1997, investors like George Soros start to focus on Thailand and bet for Thai baht devaluation or collapse because Borrowing too much money.
Usually when “Big money” is betting against “small money” it fulfills the prediction. Moreover; major Banks worldwide followed Soros on his bet. The Thai Baht was under speculative attack.
Consequently, Government Thailand buys more and more bath with the dollar it keeps in its reserves to pay out speculators who wanted to cash out. Money goes out from Thailand and back to U.S => downward pressure on the currency value.
Contagion:
By the End of July, Thailand is forced to devalue the baht. Malaysia’s ringgit, Philippine’s peso, and Singapore’s dollar started to depreciate. In August, 1997, Thailand received $17 billion loan from IMF and Asian nations. The Thai government closed 42 finance companies and imposed tax hikes as part of the IMF 's insistence on austerity. Meanwhile, Indonesia abandoned the rupiah 's
References: Currency Exchange Rates - USD vs. JPY - Quandl - Quandl . 2013. Currency Exchange Rates - USD vs. JPY - Quandl - Quandl. [ONLINE] Available at: http://www.quandl.com/QUANDL-Quandl/USDJPY-Currency-Exchange-Rates-USD-vs-JPY. “The Onset of the East Asian Financial Crisis” Steven Radelet and Jeffrey Sachs Andrew Sheng, 2009. From Asian to Global Financial Crisis: An Asian Regulator 's View of Unfettered Finance in the 1990s and 2000s. 1 Edition. Cambridge University Press. Movie NBR, Adam Smith