Implications of the Asian Financial Crisis. The Asian Financial Crisis also called the "Asian Contagion". This was a series of currency devaluations and other events that spread through many Asian markets beginning in the summer of 1997. The currency markets first failed in Thailand as the result of the government's decision to no longer peg the local currency to the U.S. dollar. Currency declines spread rapidly throughout South Asia, in turn causing stock market declines, reduced import revenues and even
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Government always feel managing currencies as a tough job. Here the video presents how to manage the currencies, why are the countries governments want to manage the currency and how far they are succeeded in managing the currencies along with the importance of policy coordination, Institutions that helped to formulate the coordination internationally along with the benefits and negatives of policy coordination. Here this video is supported by two cases such as Strict fiscal and monetary policies
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Chapter 5 Exchange Rate Systems questions 1. How can you quantify currency risk in a floating exchange rate system? Answer: To characterize the risk of a currency position, you must try to characterize the conditional distribution of the future exchange rate changes. With floating exchange rates, historical information provides useful information about this distribution. For example, you can use data to measure the average historical dispersion (standard deviation or volatility)
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3. Exchange rates depend primarily upon which of the following? a) monetary systems b) political systems c) trade deficits d) inflation rates between nations b 4. Replacing the local foreign currency with the dollar is> a) Seignorage b) Dollarization c) Depreciation d) Appreciation d 5. Adjusting national economic policies to maintain foreign local exchange rates within a specific margin around agreed-upon, fixed central exchange rates is called a)
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Monetary policy Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability.[1][2] The official goals usually include relatively stable prices and low unemployment. Monetary theory provides insight into how to craft optimal monetary policy. It is referred to as either being expansionary or concretionary, where an expansionary policy increases the total supply
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domestically produced. Overvalued currency, causing consumers to buy cheaper imported goods. Structural weakness in the economy so loss of market share. 3. In the case of China, surplus is occurring as national output exceeds domestic demand. The Chinese production greatly outstrips Chinese demand for goods and services and so there is a massive trade surplus. 4. Retrieving a government bond is a way for the firm or government to borrow money at certain interest rates. In return for buying the bond
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initially adjust in response to the changes in inflation (holding exchange rates constant). Explain how the international capital flows should adjust in response to the changes in interest rates (holding exchange rates constant). With the expectation of a decrease in the British inflation rate when compared to the United States, the response of international trade flows will be a decrease in British consumers’ interest in U.S. products. As a result, the U.S. will be able to export less into Britain
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___________________________________________________________________________ The foreign exchange market does not have a physical market place called the foreign exchange market. It is a mechanism through which one country's currency can be exchange i.e. bought or sold for the currency of another country. The foreign exchange market does not have any geographic location. The market comprises of all foreign exchange traders who are connected to each other through out the world. They deal with each other
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Nov. 06, 2011 1) Triangular arbitrage (also referred to as cross currency arbitrage or three-point arbitrage) is the act of exploiting an arbitrage opportunity resulting from a pricing discrepancy among three different currencies in the foreign exchange market. A triangular arbitrage strategy involves three trades, exchanging the initial currency for a second, the second currency for a third, and the third currency for the initial. During the second trade, the arbitrageur locks in a zero-risk
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Assignment: Exchange Rate Risk Management As the world of business becomes increasingly global, multinational corporations (MNCs) are establishing the production and marketing operations in foreign countries. These MNCs face a variety of challenges. One of challenge faced by MNCs in foreign markets is fluctuations in currency exchange rates. Movements in exchange rates can cause instability in profit margins and significant losses to an MNC’s bottom line. Thus, exchange rate risk management is an
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