Financial Crisis

762 Words May 22nd, 2014 4 Pages
Syndicate group assignment

What were the origins of the Asian currency crisis?
The Asian currency crisis was a period of financial crisis started in Thailand in July 1997. Many Asian countries experienced a financial crisis are a large drop in the value of its currency and a large drop in its traded equity prices. Before the crisis happened, many Asian countries produced a dramatic reduction in poverty and rapid economic growth. Behind the boom, there are lots of imbalances: large current account deficit was financed increasingly by short-term inflow; the real exchange rate had appreciated to an unsustainable level; and export growth had slowed obviously. Based on a literature review, a great
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It can be present any time two parties come into agreement with one another. In a contract, each party may have the opportunity to gain from acting contrary to the principles laid out by the agreement. For example, a salesperson may not try his or her best to sell the owner’s goods if the salesperson is paid a flat salary without commissions for the sales. Because the salesperson’s income stays the same regardless of how much the business owner’s profit from his or her work. This kind of risk is recognized as the moral hazard. Moral hazard can be reduced by the placing of responsibilities on both parties of a contract. In the salesperson’s example, the owner can pay a wage comprised of both flat salary and commissions to improve the incentive of the salesperson.
From the mini-case, it is showed that moral hazard was at the center of the Asian currency crisis. In the crisis, moral hazard was created by overprotecting the investors, which included government guarantees, industrial policy, and crony capitalism accorded to industrial firms and banks. Deposit insurance and other government guarantees for banks were the major source of moral hazard. For example, in Korea many large firms took
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