Abstract This paper reviews ten articles on the currencycrises of the past 20 years. The paper examines the global impact a crisis in one country or area has on the world, such as the Asian currency crisis of the 1990s, and discusses the notion that currencycrises are self-fulfilling. The paper also looks at whether currencycrises are predictable.
From the Paper "Currency crises have gained much attention in the past years because they have apparently occurred with greater frequency than in the past or perhaps because the global nature of today's financial markets make a currency crisis in one nation a concern around the world. Increasingly, currency stability is of interest to more than just economists and policy makers, with companies and individual investors noting the movement or stability of various currencies with interest .These are not necessarily new stakeholders with regard to..."
Tags:Currencycrises, currency crisis, literature review
Abstract This document discusses currencycrises and utilizes the Asian financial crisis of 1997 to 1998 and the Mexican peso crisis of 1994 as illustrative examples. In both of these examples, the writer notes that the currencycrises were precipitated by sudden capital flights out of the markets in question which exacerbated the devaluation of the currencies. In essence, the writer maintains that currencycrises occur because investors, internal or external, leave a market suddenly and with little prior indication. The writer concludes that regardless of how valid the investor assumption of impending currency devaluation is the fact of their sudden flight from the market always leads to the devaluation they were predicting.
Outline:
Abstract
CurrencyCrises in Asia and Mexico
Overview
Asian Financial Crisis
South Korean Crisis
Central Bank & OMO
Exchange Rate Behavior
Conclusion
Mexican Currency Crisis
Overview
Build up to Crisis
The Trigger
Conclusion
From the Paper "Thus, because of the currency speculators, who are typically foreign institutional investors, introduce a degree of risk simply through the size of their investment in a single currency that would not otherwise be there if the speculation was limited to smaller investors. While there are a whole slew of factors that must accompany a genuine currency crisis, in general, a crisis develops as these large institutional speculators perceive a decline in value of the currency and dump their investments en masse. The ensuing devaluation of the currency in question is unsustainable and the event often exposes other fundamental economic weaknesses that were disguised previous to the onset of the currency crisis, such as credit over extension in the market and a lack of foreign capital reserves."
Abstract This document discusses the characteristics and attributes of hard and soft currencies. The paper identifies hard currencies as positive investment targets and are typically associated with stable economies and politically stable markets. The paper further discusses how soft currencies are most often associated with emerging markets and are typically avoided by investors because of their negative practices such as issuers often pegging such soft currencies to hard currencies which serves to destabilize world currency markets.
From the Paper "Hard and soft currencies as well as knowledge of them are vital in the global economy. How international currencies interact is a strategic consideration for corporate bodies with operations in more than one area, country, or region in matters such as hedging for risk or in repatriating revenues. A hard currency is typically referred to as the currency of a leading economy and one that is widely accepted in all markets as a common form of payment, such as the U.S. dollar, the Swiss franc or the British pound (Carrada-Bravo, 2003, p.17). Additionally, hard currencies, or currencies classified as hard in character are especially liquid on foreign exchange markets where they are actively traded. Another perspective of hard currencies is that they are normally associated with politically, economically, and socially stable countries (Laulajainen, 2003, p.44)."
Abstract This paper defines derivatives as financial instruments such as options, futures, forwards and swaps that are derived from their underlying currencies. The returns on derivatives are tied to yields of these underlying securities and currencies. This paper details the essential role the derivatives market plays in the global economy in countries such as Asia, Germany and Switzerland, in which these economies reap substantial growth rates due to these financial practices. The writer contends that with the presence of this market the financial condition of business entities are stabilized and secure from the possibility of hedge currency risks. The derivatives market also decreases the amplitude in the fluctuation of spot prices and promotes optimal funds placing. The writer stresses the importance in the implementation and development of the currency derivatives market as a necessary prerequisite for the growth of international trade volume, expansion of foreign investment and for the general development of economy.
Table of Contents:
Abstract
Currency Derivatives Operations in the World Economy
References
From the Paper "Derivatives market in Ukraine was operating from 1994 to 1998. Unfortunately, its work was far beneath the world standards. From the very beginning the Ukrainian market was developing as an exchange market, despite the fact that the world derivatives development gained the incentive to growth from over-the-counter form of these instruments. Hedgers, a category of market subjects, almost did not participate in the activity of Ukrainian currency exchanges, and the absence of hedgers makes the market non-balanced and not liquid. Moreover, the world financial crisis of 1997 caused the collapse in currency markets. The National Bank of Ukraine made a decision to hold up and later to abolish the functioning of currency derivatives in Ukraine. We would like to underline that despite the crisis in the Russian market, the operations with currency derivatives were not stopped, but continued to develop."
Abstract This document discusses the Euro markets within the European Union vis-a-vis the Euro currency. The paper examines the currency itself, its management, as well as the individual markets. Finally, the paper makes several observations regarding the macroeconomic impact of the euro as well as how companies utilize currency markets for competitive advantage. The Euro is now considered a hard currency.
From the Paper "Familiarity with the Euro currency markets is vital in the current global market. The implementation of the Euro currency required careful and lengthy planning. The exchange rates at induction of the Euro was particularly problematic considering the sheer variety of national currencies that were being converted over and the variance of existing exchange rates whereby a complex system of triangulation between currencies, exchange rates, and fixed rates (Mundell, 2003). Thus, on January 1, 1999 the Euro was introduced to the national economies of the member states of the EU in 11 of the 12 countries. However, this was just a partial introduction since Greece failed to meet the strict requirements which involved deficits: "On January 1, 1999, the Euro will become the official currency for banking purposes of 11 of the 15 member states of the European Union..." (Walker, 1998, para.6)."
Abstract This paper examines hard and soft currencies. It provides a definition and practical examples of both. The paper addresses the issue of convertibility, as well as the options sellers have relating to hedging.
From the Paper "A hard currency is a freely convertible currency that is not expected to depreciate significantly in value in the foreseeable future. A hard currency is considered to be stable meaning that it is not subject to dramatic variations in its value relative to other currencies expressed as changes in its exchange rate. As a general rule, demand for hard currency in foreign exchange markets is high because of it stability. A soft currency often is a currency that is not fully convertible to all currencies..."
Tags: Hard and soft currencies, foreign exchange, fx, exchange rate fluctuations, currency converters, volatility, exchangeability.
Abstract This eight page paper examines hedging currency risks. The author notes that in critically discussing the view that the efforts by companies to hedge currency risks are of little value to the owners of such companies, it is evident that there is much support for this view. For example, the writer points out that in a Mercer Management Consulting survey of 111 pension fund managers in North America, Australia, Japan and the UK, 86% of respondents said they consider the impact of hedging currency risks to be nil over the long term.
From the Paper "In critically discussing the view that the efforts by companies to hedge currency risks are of little value to the owners of such companies, it is evident that there is much support for this view. For example, "in a Mercer Management Consulting survey of 111 pension fund managers in North America, Australia, Japan and the UK, 86% of respondents said they consider the impact of hedging currency risks to be nil over the long term". But this view is not universal by any means, for more than sixty-percent of the respondents in this survey believed that hedging currency risks "can have a short-term effect on volatility. Despite this reservation, 79% say they would allow fund managers to carry out hedging operations"."
Abstract The paper provides the background of the 1997 Asian currency crisis and explains the five main causal factors. The paper then explores the effects of the Asian currency crisis on the Asian economic paradigm and concludes by relating that major hindrances still remain in the banking system.
Outline:
Main Explanations of the 1997 Asian Currency Crisis
Implications of the Crisis for the Asian Economic Paradigm
From the Paper "The Asian currency crisis started in two phases of currency depreciations which were underway since the initial part of summer of 1997. The first round was marked by a steep decline of the Thai Bhat, the Malaysian Ringgit, the Philippine Peso and the Rupiah of Indonesia. Following the stabilization of the currencies, the second round set off with downward pressures hitting the Taiwan dollar, Won of S. Korea, Singaporean and Hong Kong Dollar. The governments of these nations had countered weakness in their currencies through the process of selling foreign exchange reserves and raising interest rates that in effect rendered economic growth sluggish and have made interest-bearing securities more appealing compared to equities. The currency crises also brought to light acute problems within the banking and financial sectors of the burdened Asian economies. (Nanto, 1998)"
Abstract The prospect of switching Britain's official national currency to the Euro, and the related issue of whether the country should join the European Union, have certainly inspired much heated debate and a variety of viewpoints regarding possible consequences of these changes. This paper explains that the widespread prevalence, passion and diversity of the public discussion on British currency could be seen as a possible reason for the government's resistance to the Euro, in and of itself. It explains that the United Kingdom is regarded all over the world as a successful, consolidated democracy, meaning that the government represents the interests and wishes of its citizens. The writer further points out that therefore, it seems likely that until the public is assured and convinced that the Euro will result in only positive economic and political changes for both ordinary Britons and the country as a whole, the pound will continue its exclusive monopoly over the British economy for many years.
From the Paper "The decision of Britain of whether to adopt the euro as their only currency and eliminate the pound completely has been widely debated over the last few years. There are a myriad of good reasons for this; the switch to the euro currency will undoubtedly have various consequences whose benefits and downsides are very debatable. These consequences will certainly affect several of Britain's long-established roots and traditions in aspects of its government such as the economy, of course, but also its political parties, European integration, international relations, citizen participation in the government, and public opinion. Furthermore, economic results of Britain's adoption of the euro will likely include significant modifications in taxation, trade, unemployment, price stability, interest and exchange rates, standards of living, and economic distributional policy."
Abstract This paper looks at the currency crisis in Thailand, which started in the summer of 1997 and rapidly engulfed a number of East Asian "Tiger economies" in a major financial crisis. This crisis became a an interesting case study for economists who were interested in analyzing the pros and cons of globalization and laissez faire market economies. The author further examines the effects of the East Asian currency crisis, on Thailand itself, which underwent a painful re-adjustment of its economy.
Outline:
Background
The Danger Signals
Foreign Exchange Reserves
Current Accounts Deficit
Excessive Credit Expansion
Why Did the Growth Slow Down?
The Housing and Real Estate Bubble
The Stock Market Bubble
The Crisis
The Aftermath of the Crisis for Thailand
Conclusion
From the Paper "The country took a number of measures to attract foreign capital during the 1980 and early 1990s. These included lifting of restrictions on foreign investments, elimination of most barriers on foreign ownership of export oriented industries, granting of tax incentives to foreign mutual funds and investments in the stock market, creation of closed-end mutual funds, and reduction of taxes on dividends remitted abroad (Antczak 40-41). These measures along with a pegged exchange rate policy (i.e., the Thai currency baht was pegged to the dollar and its value rose and fell with dollar's value), and the large differential in interest rates provided comfort to foreign investors who came to Thailand in droves. "
Tags: Thailand, currency, crisis, globalization, Asia
Abstract This paper describes hard and soft currencies . The author clarifies the way they are used in global financing operations. The paper stresses their importance in managing risk.
From the Paper "A working definition of a hard currency is a freely convertible currency that is not expected to depreciate in value in the foreseeable future, meaning that it is a relatively stable currency not normally subject tn dramatic variations or fluctuations in the exchange rate. Another definition would be that a hard currency is a currency traded in a foreign exchange market for which demand is consistently and persistently high. In contrast, we could define a soft currency as a currency that is not fully ..."
Tags: Hard and soft currencies, Convertibility, FX, fluctuations, risk mitigation, hedging tools
Abstract This study applies ordinary least squares (OLS) estimation procedures, with and without lags, to identify the causes of currencycrises in selected economies during the 1997-98 East Asian currency and financial crisis. The author states that the cause of the crisis was attributed to initial macroeconomic conditions, weak macroeconomic fundamentals, financial sector regulation, and policy reaction. The paper relates that the empirical results were consistent with previous literature on currencycrises; episodes of depreciation appear to be associated with the depletion of foreign exchange reserves and the increase in foreign liabilities. Equations. Tables.
Table of Contents
Introduction
Classical Theory
Empirical Research Explaining Currency Crisis
First Generation Models
Second Generation Models
Third Generation Models
Policy Reactions and the Role of the IMF
Conceptual Model
Initial Conditions
Deterioration of Macroeconomic Fundamentals
International Sector and Financial Regulation
Macroeconomic Policy
Ideal and Actual Data
Measuring the Symptoms
Measuring Currency Crisis
Actual Data
Results and Analysis
Conclusion
Appendix I: Summary of Data and Indicators Used in Previous Studies
Appendix II: General F-Tests
Appendix III: Statistical Analysis for Multicollinearity and Heteroskedasticity
Appendix IV: E-views Output of Granger Causality Tests
From the Paper "Although Korea, the Philippines and Thailand followed the classic prescription of raising their interest rate to defend their currencies, all three saw continued depreciations, well in excess of what would be predicted by the currency crisis models Furman and Stiglitz (1997). From a policy perspective, Goldfajn and Gupta (1998) look the real exchange rate "undervaluation" episodes in 80 countries following the crises to assess whether tight monetary policy brings about a recovery in the real exchange rate through a nominal appreciation of the exchange rate. They find that in their total sample, tight monetary policy increases the probability of recovery by about 10 percentage points. But among countries undergoing simultaneous banking and currency crisis, as in East Asia, tight monetary policy is associated with roughly 10 percentage points lower probability of success. Both of these differences are statistically significant."
Abstract Three times in the past two decades we have seen an economic crisis hit developing countries. These were the debt crisis in the 1980s, the Tequila Crisis in 1994-1995, and the Asian Crisis that started in 1997. Each of these had impacts that affected other countries as well. This paper looks at the ways in which such crises start and possible means to determine which countries are susceptible to them. The ways in which this type of crisis spreads is also examined, since it appears that the same methods of determining whether a country might be the source of such a problem can also show if a country is open to contagion in the event a crisis does occur in another country. The paper begins by looking at some of the events involved in the three crises discussed. Only the latest crisis-in Asia-is discussed in detail. The two prevailing hypotheses to explain these events are then discussed with their shortcomings. One interpretation is that the governments are to blame. This outlook claims that the latest crisis-in Asia-is the result of weak government regulations and strong government guarantees. This also leads straight into the moral hazard theory. The other side focuses on economics and claims that fragile markets in the region can allow a crisis in one market to trigger a panic and financial collapse in others. In the case of the Asian crisis this is traced back to Thailand. It is shown that by putting these two hypotheses together, rather than trying to keep them mutually exclusive, a more cohesive picture-and hypothesis-can be created. Information concerning the three crises examined is shown to be more readily explained by using the approaches together rather than separately.
Paper Outline:
Introduction
A Brief Look at Three Debt Crises A Look at Prevailing Theories and Problems with Them
Tying the Two Approaches Together
Contagion
Conclusion and Comments
Works Cited
From the Paper "Financial system reform is another area in which the realms of government and economics are clearly linked. Such reforms are virtually always the result of government action and not due to the efforts of business and industry. In fact, these reforms are often done despite the desires of the various sectors of commerce. The IMF again gives us striking examples of this. The conditions the IMF places on loans frequently require that a government take actions that will affect the economy. That is, in fact, the rationale behind the conditions."
Abstract A good home is clearly a basic human need. This fact is clearly stated in Article 25 of the Universal Declaration of Human rights adopted by the United Nations Organization (UNO) in 1948. This paper examines both the causes of the global hosing crises and its impact on the environment as well as on the health of the people. Also examined in this paper are the steps taken to address this global problem in various countries. Outline Introduction Causes of the Global Housing Crises Population Growth Urbanization Natural and Political Disasters Poverty and Economic Stagnation The Impact of the Global Housing Crises Poor Housing and Health Poor Housing and Environmental Pollution
From the Paper "The economic situation in a country could also affect the state of housing in that country. In some countries, a lot of people are so poor that they could barely afford the basic necessities of life such as food and clothing. It is thus an uphill task for people under this category to afford descent living places. High interest rates and inflation push bank loan payments far out of reach of many families, and soaring utility costs make it difficult for people to get ahead. Unemployment rates as high as 20 per cent in some lands make it almost impossible to make ends meet. These and other factors has forced hundreds of millions in every corner of the earth to settle for substandard housing. People live in old buses, shipping containers, and cardboard boxes. "
Tags: urbanization, poverty, economic, stagnation, population
This paper analyzes the issue of the U.S. trade balance and its significant impact on the exchange rate in America due to the burgeoning trade deficit and declining value of the dollar against other major world currencies.
Abstract This paper examines the relationship between the trade balance and the exchange rate. The writer details the general rule of economics that states a negative trade deficit normally leads to a weaker currency while trade surplus results in enhanced value of currency, although there are exceptions to the rule, which are detailed in this paper. This paper discusses the issue of the U.S. trade balance and its effect on the exchange rate of the country's currency which is currently in the limelight due to the burgeoning U.S. trade deficit and the declining value of the dollar against other major world currencies. The writer of this paper delves into America's economy against that of China's and questions whether the U.S. dollar will retain its status of the reserve currency in the long run. This paper touches on the opinions and views of economists and U.S. treasury officials who contend that the current trade deficit is nothing to be alarmed about as the country's economy and the U.S. dollar survived a similar slide in the late 1980s. This paper also discusses the opinion of the U.S. administration that believes the alleged under-valuation of the Chinese Yen is a prime source for the deficit problems since there is a huge and growing trade imbalance between the U.S. exports and imports to China. The well-researched and well-written paper clearly define the terms: Trade balance, exchange rate and reserve currency.
Table of Contents:
What is Trade Balance?
What is Exchange Rate?
The Extent of Trade Balance Deficit in the U.S.
What is a Reserve Currency?
Can the U.S. Dollar Retain its 'Reserve Currency' Status for Long?
Is the U.S. Trade Deficit Sustainable?
Is China the Source of the Deficit Problem?
Possible Solutions to the Trade Deficit Problem
Conclusion
References
From the Paper "The key question is, can the US dollar retain its status of the resrve currency for long? History suggests that it may not. Before the advent of the dollar as the world's reserve currency, the British Pound had enjoyed such a status. Between the two World Wars and the post-World War II period saw the weakeing of the British economy. As a result, the British Pound was devalued by 30% in 1949, effectively ending its run as the world's reserve currency and the start of the dollar's reign. Dollar has been able to retain its status as the reserve currency since it was relatively stable, was backed up by the formidable economy of the US, low interest rates and the absence of an alternative currency."
