Article Analysis: 'International Financial Contagion in Currency'

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Article review Caramazza, F., Ricci, L. & Salgado, R. 2004. International financial contagion in currency crises. Journal of International Money and Finance, 23 (1), 51 70. The interconnected nature of the international business market was thrown into sharp relief in the wake of the 2008 credit crisis (Bernanke 2013). However, as detailed by Caramazza, Ricci & Salgado (2004), the dangers of financial interconnectedness were also manifested during the regional financial tsunamis that overtook East Asia, Mexico, and Russia in the 1990s. The authors refer to the phenomena as financial contagion. The Mexican crisis of 1994 95; the Asian crisis of 1997; and the Russian crisis of 1998 in all have the same root causes. Specifically, the authors state that sharing common creditors meant that a financial crisis in one country created instability in the creditor nation and sparked the need for the creditor to cut back on lending (a source of revenue) or to recall loans. The larger the number of loans, the greater the likelihood of financial instability spreading from one nation to another (Caramazza, Ricci & Salgado 2004: 52). In total, 9 economies "experienced substantial currency pressures during the six-month window of the Mexican crisis episode, 10 during the Asian crisis episode, and 13 during the Russian crisis episode," indicating the magnitude of the problem (Caramazza, Ricci & Salgado 2004: 55). The

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