...The Russian financial crisis occurred on August 17, 1998, exacerbated by the global recession caused by the Asian financial crisis in 1997. Russia was highly dependent on exports of raw materials, with petroleum, natural gas, metals and timber accounting for more than 80% of its exports. With the drop in global demand, prices of those commodities began to decline. This resulted in an impact on its foreign exchange reserves since Russia had a fixed exchange rate regime during this period of time, where the ruble was only allowed to move within a narrow band. With the speculative attacks caused by the Asian financial crisis along with the decline in global demand, the Central Bank of Russia stepped in to defend the ruble in the markets. Russia was also experiencing fiscal deficits and declining productivity in its economy. Foreign capital was initially attracted to the Russian market due to the high interest rates, which was then used to provide internal loans in the country. The Gosudarstvennoe Kratkosrochnoe Obyazatelstvo (GKO) bond interest rates soared to 150% in an effort to prop up the currency and to stop capital flight. Internally, debt on wages continued to grow and financing for major big budget items were impacted as debt grew. The Chechnya War from several years earlier further compounded these problems. Russia also suffered from a political crisis where the entire government was fired in 1998, causing for investor confidence to be further eroded. ...
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...Introduction: The purpose of this report is to consider The Russian Crisis of 1998. What events led to this crisis, how it affected ordinary citizens and the effect it had on the world capital markets. We will also discuss the role IMF and other countries played in helping with the crisis. What the Russian government did in order to stabiles the situation and what role politics played in the process. We will use a number of sources in order to complete this report. Question One: What event is recognised as the beginning of the crisis? The Russian crisis begun on August 17th 1998 when the central bank of Russia announced that it would widen the intervention bands from ruble. It meant that the ruble was allowed to fluctuate against dollar. As a result, the exchange rate of the ruble fell steadily which led to a collapse in Russia economy. However, the crisis was not caused by a single event. It was a consequence of a continuing downward trend in Russia economy since its economic reform in 1991. The crisis’s seeds were sown from that day. The main causes of this crisis could be divided into 3 timelines: * Period 1991 – 1996: In 1991, Russia changed from a very strictly centralized economy to a market economy. Up until then, the Soviet played the most important role in subside all the state sectors. It consumed one-third of GDP and supported at least every third man, woman, and child (Roman, G & Robin, M – 1999). When the real prices were introduced, these state sectors...
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...A Case Study of a Currency Crisis: The Russian Default of 1998 Abbigail J. Chiodo and Michael T. Owyang currency crisis can be defined as a speculative attack on a country’s currency that can result in a forced devaluation and possible debt default. One example of a currency crisis occurred in Russia in 1998 and led to the devaluation of the ruble and the default on public and private debt.1 Currency crises such as Russia’s are often thought to emerge from a variety of economic conditions, such as large deficits and low foreign reserves. They sometimes appear to be triggered by similar crises nearby, although the spillover from these contagious crises does not infect all neighboring economies—only those vulnerable to a crisis themselves. In this paper, we examine the conditions under which an economy can become vulnerable to a currency crisis. We review three models of currency crises, paying particular attention to the events leading up to a speculative attack, including expectations of possible fiscal and monetary responses to impending crises. Specifically, we discuss the symptoms exhibited by Russia prior to the devaluation of the ruble. In addition, we review the measures that were undertaken to avoid the crisis and explain why those steps may have, in fact, hastened the devaluation. The following section reviews the three generations of currency crisis models and summarizes the conditions under which a country becomes vulnerable to speculative attack. The third section...
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...A Case Study of Currency Crisis: The Russian Default of 1998 Background of Russia Russian Federation was formed in 1991. The country tried to maintain a fixed exchange rate however, Russia had a “fragile fiscal position”(Economic Report) which turned unstable as the world markets changed. Up until 1997 Russia had slow but eventually a year of positive economic growth, at which point the country started to stumble. Russia launched a reform program in 1992. At the time of 1992, the monetary inherited from Soviet times resulted in an increase over 350 percentage of price level in a month. Rumbles was introduced in July 1992, inflation became the central concern in the relief. With limited foreign reserves, Russia joined the IMF and World Bank on June 1, 1992 and agreed several economic transition programs that would bring fund of billions of US dollars. After 4 years of economic stabilization and control of inflation rate, Russia’s inflation fell from 197% in 1995 to 47.7% in 1996 and 14% in 1997. In 1993, a short debt term instrument, Government Short Commitments (GKO), was introduced. It provided the government with an extra, non inflationary to finance its budget deficit. Russia’s fiscal deficit fell significantly, from 11% of GDP in 1994 to less than 5% of GDP in 1995. CBR’s foreign reserves increased from 4 billion US dollars in 1994 to 14.4 billion US dollars in 1995. However, one third of ruble short-term debt was held by foreign investors. Direct foreign investments...
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...Global Investor Publishing (GIP)’s financial problems are industry related. Two primary industry events lead to the 1998 Russian financial crisis: (1.) the onset of the Asian financial crisis in 1997 precipitated a speculative attack on the Russian ruble resulting in a loss of approximately $6 billion in foreign exchange reserves by the Central Bank of Russia for defending the ruble, and (2.) a decrease in demand for Russia’s largest exports, crude oil and nonferrous metals, triggered price drops that severely impacted foreign exchange reserves. On August 13, 1998, the Russia stock market, bond, and currency markets collapsed from investor fear of a government debt default and/or devaluation of the ruble. As a result, the Russian government was forced to default on its domestic sovereign debt, devalue the ruble, and suspend payments by commercial banks to foreign creditors for 90-days. Based on the timing of the Russian financial crisis, GIP’s 1998 net loss of -104.3% from the prior year (- $6,177 in 1998 vs. $144,710 in 1997), and the firm’s desperation to protect its market share from further decline, merging with Emerging Markets Fund Research (EMFR) makes sense. The merger would provide the combined firms with economies of scale, growth opportunities, diversification, increase revenues, expansion into new markets, defensive measures for protecting its market share, and management efficiencies. For a merger to successfully deliver an improvement in economies of scale...
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...Matiukhin. 24, NOVEMBER 1998. Международный Институт Экономики и Финансов, 1 курс, Высшая Школа Экономики. ICEF, gr. 2. It is obvious almost to everyone, that 1/6 of the land is now in deep economical and political crisis and the whole world is waiting to see how the country will emerge from it. Russia’s chaos was caused by economic turmoil and political upheaval. Economic slump on the stock market, devaluation of the ruble, a default on foreign debt by banks and government are parts of a climax and the general instability of Russia is worsen by them. These things sometimes happen in the process of transforming a country from a command into a market economy.www.russiatoday.com; Fr. Aug. 21 1998. There was a sharp increase in the inflation level after it has been brought down to as little as 5.6% a year in July. The prices began to rise fast and a lot of people were thrown far beyond the poverty level. The anatomy of the financial crisis consists of several causes. The first cause is the so-called “Asian factor”. There was economic turmoil in Thailand first and then it spread all over Asia: South Korea, Hong Kong, Singapore and Malaysia in 1996- 1997. "All these countries and more have seen their economies wrecked over the last couple of years. Now Russia has its currency heading for the basement and is basically defaulting on its national debt". http://www.islamic.org.uk Aug. 39 1998.It has scared foreign investors...
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...Case Study Outlines Part One: A New Era Founding Performance P f Trading strategy Mutual Fund & Hedge Fund u ua u d edge u d Part Two: When Genius Failed Downturn: 1998 Russian Financial Crisis Chain Reaction In the end: Bailout & Characters Part Three: Enemies are ourselves Risk Measurement Diligence, Ethics and Honesty Dili Ethi dH t Part One: A NEW ERA Founding of LTCM LTCM was founded in 1994 by John Meriwether, the former vice‐ chairman and head of bond trading at Salomon Brothers t di tS l B th LTCM was a speculative hedge fund based in Greenwich, Connecticut that utilized absolute‐ h l d b l return trading strategies combined with high leverage. The fund's operation was designed to have extremely low overhead; trades were conducted through a partnership with Bear Stearns and hi i h B S d client relations were handled by Merrill Lynch. LTCM Partners John Meriwether Former vice chair and head of bond trading at Solomon Brothers; MBA, University of Chicago Leading scholar in finance; Prof. at Harvard Co-author of Black-Scholes model; Prof. at Stanford St f d Vice chairman of the Fed; Prof. at Harvard; Arbitrage g p at Salomon; former Harvard g group ; Prof. Arbitrage group at Salomon; former Harvard Prof. Arbitrage group at Salomon; Ph D MIT Ph.D. Arbitrage group at Salomon; Ph.D. MIT Bond trader B dt d Executive at Salomon Arbitrage group at Salomon; Master in Finance, LSE Robert C. Merton Myron Scholes David W. Mullins Eric Rosenfeld...
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...Intro to Economic Thought (ECO 105) Robert Ellmann Financial Crises Irina Sterpu __________________________________________________________________________________ OUTLINE Introduction into the topic and its origins The Great Depression 1929-1939 German Hyperinflation 1918-1923 The Great Recession 2008 1973 Oil Crisis European Sovereign Debt Crisis 2009, onward Ruble Crisis 1998 Black Monday 1987 Conclusion References Financial crises – definitions and origin The majority of economists and monetarists define financial crises as a manifestation form of banking crises, with an impact on financial stability and reaching the state of collapse of the financial infrastructure in the absence of central bank‟s intervention. Financial collapse which affects most of the companies generates quickly problems over the banking system as the following consequences: the panic of the clients, inability to distinguish between the efficiency and the difficulty of banks, deposit withdrawals. Jack Reed, an American politician mentions: “The financial crisis is a stark reminder that transparency and disclosure are essential in today's marketplace.” In economic literature, the problems in the banking system are the main sources of the financial crises. All the economic collapses require injections of liquidity or public financial funds, in some cases, private funds from banks and international institutions. Financial crises have usually...
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...Russian GDP Following the section about Russian output, we now turn to the BRICS country GDP, Inflation, and Monetary Policy. All three of these areas of the Russian economy depend immensely on the product that is 70% of Russian export: Oil. We see that each year there is a dip in the price of oil Russian (for example 1998 and 2008) we see a dip in GDP and a rise in inflation. Hence, the monetary policy set by the Central Bank of Russia is contingent upon the gas price. The Russian GDP has been growing staidly since 2008. We see that before the 2008 global financial crisis, Nominal GDP was on an annual rise of 7%. However, in 2008 the Oil price plummeted from 147.00USD/barrel to 50.00USD/barrel. This caused a government shortfall in the 08-09 fiscal years, and resulted in a sharp dip in nominal GDP from which Russia has yet to recover. However, despite the 2008 crisis, the Russian GDP has been growing 4.3% annually since 2008, as the price of oil continues to rise. In 2011, as Russian citizens are getting back to work, the current GDP per capita is $13,236 USD. The primary problem with the Russian economy is its historically high inflation. Only recently has the Russian economy seen an inflation number in the single digits (3.7% as of Feb. 2012). Nevertheless, in 2011, the inflation rate was a little bit under 10% and is has been in the general 10-15% range since 2004, with the 15% spike in 2008. The reason for the low inflation rate this year is based in three main...
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...1, 2005 MICHAEL RUKSTAD SASHA MATTU ASYA PETINOVA Ice-Fili (АЙС-ФИЛИ) You cannot defeat a nation that enjoys ice cream at minus 40 Celsius. — Winston Churchill To survive in Russia’s ice cream industry during the 11 years since the collapse of the former Soviet Union was no small feat (see Exhibits 1 and 2). To be successful in these turbulent times was nothing short of amazing to industry observers. In 2002, Ice-Fili, a midsized Russian company with more than $25 million in sales, was Russia’s top ice cream producer. Surprisingly, it had outlasted several well-known international companies such as Ben & Jerry’s, which exited the Russian market in 1997, and Unilever, which left in 2001. Ice-Fili had not only successfully transitioned from the tight controls of the Soviet regime to the infant Russian open-market economy in 1992, but it had also successfully navigated its way through the difficult times of Russia’s 1998 financial crisis. Ice-Fili was fighting to maintain its market share leadership in the increasingly competitive Russian ice cream market, which had decreased over the past few years to about a half-billion dollars in sales. Nestlé, which advertised heavily, was Ice-Fili’s fiercest competitor. While most ice cream producers were left to fight in an already saturated ice cream kiosk system, Baskin & Robbins and Haagen-Dazs1 had positioned themselves as premium ice cream producers, distributing through franchised restaurant and café networks. At the other end...
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...The Weak of the BRIC: Currency Depreciation in Russia and Brazil ◎D0131160 Irina Chen ◎D0131187 Gloria Chang ◎D0173297 Sunny Chiu ◎D0173270 Doris Chen ◎D0173670 Athena Du Contents Abstract ..................................................................................... 2 Brazil ......................................................................................... 3 Why Brazil become the BRIC ................................................... 3 What was behind Brazil’s Depreciation? ................................. 8 Russia ...................................................................................... 13 Why Russia become the BRIC?.............................................. 13 What was behind the Ruble depreciation? ........................... 19 Comparison and Similarities between Russia and Brazil ....... 24 In the Future ........................................................................... 25 The Future of Brazil ............................................................... 25 The future of Russia .............................................................. 25 Conclusion ............................................................................... 26 Contributor ............................................................................. 27 Reference ................................................................................ 27 1 Abstract The BRIC is the acronym of four nations, including Brazil, Russia, India and China...
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...fiscal year 2002. It’s the oldest Russian ice cream producer. It originated from the former state-run Soviet company Moshladokombinat N 8. In 1992 it was privatised and registered as a private jointstock company under the name Ice-Fili. Its CEO is Anatoliy Vladimirovich Shamanov. He transitioned the company to a privatized for-profit firm after the dissolution of the Soviet Union in 1991. The transition was successful; it could hold its good market position and remains the largest Russian ice cream producer in the year 2002. All information about the company, the competitive environment and the political situation used in the following article are derived from the Harvard Business School Case Ice-Fili (Rukstad, Mattu, & Petinova, 2003). 2. External Analysis In this part it will be looked at the Russian ice cream industry. Therefore, an industry definition will be given. Its structure will be highlighted and from there on, the threats for Ice-Fili will be examined. 2.1 The Russian ice cream industry In the case of Ice-Fili we deal with the Russian ice cream industry. It concerns the production of frozen ice cream products from the raw material to the selling of the different sorts of ice. The original Russian ice cream consists only of natural ingredients. The people love its unique flavour that comes mainly from the high percentage of milk fat which makes it less sweet and more aerated than the western products. The Russian ice cream industry had to suffer from...
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...also become more very much alike. Body The intention of this essay is test the benefits and failures of Russia's transition. The change of Russia shifting from planned to market system has brought many benefits. The graph below shows that the Russia’s GDP has increased throughoutly since 2000. Source : www.tradingeconomics.com (world bank) On the other hand, the productivity was also increasing. It is also a major factor for economic growth. There were evidence to it since middle of 19th century. The economic growth was mushrooming in the 20th century. It was because of the substracted inputs of labor, energy, materials, and land of economic output, and also the broader markets for various outputs. (Dr. Jean-Paul Rodrigue, 1998) The graph below shows the level of productivity has increased. Source : www.tradingeconomics.com...
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...The Financial Crises in Russia and East Asia: How the World Bank can Help. 1 - Overview of Asian financial crisis On July 2, 1997, the Government of Thailand abandoned its efforts to maintain a fixed- exchange rate – the Baht had been pegged to a basket of currencies dominated by the U.S. dollar – and allowed the Baht to float. This Baht quickly depreciated, falling 18% on the first day alone. The collapse of the Thai Baht was followed by speculative attacks on other countries’ currencies (including the Indonesian Rupiah, the Malaysia Ringitt, the Philippine Peso, and the Korean Won) and to a further round of forced devaluations. The collapse of fixed exchange rates was accompanied by a series of more general financial sector crises in several of these countries. Although the precise details vary, the immediate cause appears to be a mismatch between assets and liabilities in the corporate and banking sectors (in both currency and term length) and a sharp decline in asset values. These immediate problems were exacerbated by general financial sector weakness due to inadequate supervision and rampant insider lending. In many ways the crises in Asia were somewhat different than previously observed exchange rate crises. Corsetti, Pesenti and Roubini (1998) note that several of the usual indicators of a pending financial crisis – slow growth, large fiscal deficits, high rates of inflation and low savings and investment rates – were not observed in these...
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...Q1-1.What situation was Khemka family involve during the case? SUN Brewing was founded in 1992 by Shiv Khemka with Nand, his father, and his brother, Uday. The situation is set in March 1999, when the company was facing a major crisis. In 1998, the family had been planning to raise a $200-$400 million through equity and debt offering for the company on the NYSE (New York Stock Exchange), in aim to finance major investments because of the increasing competition from international beer companies in the Russian market. In August 1998, there was a massive devaluation of the rouble that led to a 90% decrease in the stock price of SUN Brewing listed on the Luxembourg stock exchange. The proposed NYSE listings have then been cancelled and there is a $40 million bridge loan outstanding that now needs to be repaid. Q1-2.What other options could they choose originally? Bring another strategic partner (and idea originally dismissed because the family didn’t want their power over the company threatened) Reinvest from the family pool (that option was highly overlook because the family already budgeted the project and they prefer to ensure a backstop reserve of capital for preservation and discipline, also for the family reputation. Quit the business (seriously consider if the best options for them is to move on to new opportunities in other industries. Q2.Why there are different financing ways in each period? There are many different stages of financing and operating...
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