Remarks from the Thailand Crisis

After a decade of sustained growth, the current situation in Thailand is one of unprecedented economic turmoil. The countries exports have halted, foreign investors have become hesitant with their money due to the account deficit, the stock market plummeted, and big loans made by banks have caused a large accumulation of debt. Typical causes of an economic crisis, such as: high debt, large current account deficit, deregulation of the banking industry without proper controls in place, and a semi-fixed exchange rate are all at the forefront of the nation’s current economic state.

In 1997 the country’s exports were no longer booming and the Thai economy entered a unsafe and unpredictable phase. Foreign investors were skeptical about the current-account deficit and the big loans property developers. Bad debt continued to mount up and the stock market crashed to depths not seen in eight years. This caused the baht to fall prey to speculative attack. High debt, heavy borrowing, large current account deficit, and the semi-fixed exchange rate system all played a part to the Thai crisis.

Stanek, M. B. (2002). A review of exchange rate policies and their effect upon nations and

Research into Thailand showed that Thailand’s budget deficit narrowed to $4.2 billion (USD) from $5.1 billion (USD) in 2009. This demonstrates that the government is committed to meeting its foreign debt obligations and has not overextended itself concerning external borrowing. The baht (Bt) will remain strong against the United States dollar and the Bank of Thailand (central bank) will continue to intercede in the market if necessary to limit currency instability. Thailand’s banking sector is currently in a healthy state. It is adequately capitalized and has recorded strong profits in the last couple of years. Thailand’s political risk remains high due to the impending passing of the king and the difficulties that the prime minister has had with the House of Representatives. The economic structure risk is minimal even though the GDP growth has been low in the recent years, but Thailand has demonstrated a strong rebound in 2010 (Economist Intelligence Unit: The Economist [EIU], 2011).

Such a process can be very time consuming and imprecise, without, of course, having a market currency price to begin with. The exchange-rate system is an important topic in international economic policy. Policymakers and journalists often seem to treat the choice of exchange-rate system as one of the most important economic policy choices that a national government makes, on a par with free international trade. Under most circumstances and for most countries, a system of freely floating exchange rates is likely to be a better choice than attempting to peg the exchange rate.

Examine the connection and the differences between the official exchange rate market controlled by the CADIVI and the permuta. Discuss the states of equilibrium in each of these markets. Central banks intervene in foreign exchange markets in order to achieve a variety of overall economic objectives, such as controlling inflation, maintaining competitiveness or maintaining financial stability. The precise objectives of policy and how they are reflected in foreign exchange market intervention depend on a number of factors, including the stage of a country‟s development, the degree of financial market development and integration, and a country‟s overall vulnerability to shocks. The precise definition of which operations in forex markets

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) of the distribution. The higher this volatility, the riskier are positions in this currency. It is also possible to rely on more forward-looking information using the options markets (see Chapter 20). Finally, we should point out that volatility

2. The government of Asian country should not allow their currencies to float freely as it may leads to critical problems to the country. Free floating currency policy may trigger speculation on currency that can bring about financial crisis. For example, the financial crisis of Asia countries in 1997, the most famous speculator George Soros had benefited billions of money by going short of the Asian countries currency which result collapse of the country economy. Furthermore, we take China as another example. The growth rate of China GDP is 9.30% in 2011, the main force of the high growth GDP in China is export of good and services which mainly due to the low price or the low exchange rate of currency. Free floating currency will bring RMB

He contends that when the East Asian companies opened up their markets to allow in foreign capital and appease citizens who wanted globalization, they unintentionally doomed themselves for the future (Wade 107). Before they opened up their markets, bankers in East Asian countries were very cautious about whom to give loans to, and as a result, banks often had a very good relationship with those they chose to lend money. As a result, loans were only given out to safe investments. This changed when these countries opened up to the international economy, which allowed inflows of foreign capital (95). The United States in the 80’s financed its debts by selling Treasury Bills, which were commonly bought by foreign banks and then resold for additional capital. When the United States went into a recession, these foreign banks decided to invest in East Asian markets because these markets had expansive room for growth, which allowed investors to get a high return on investment (100). With the new capital, the East Asian countries invested in industry and asset bubbles, which require constant capital to pay off debts. When the United States became a good investment again in the mid-1990s, foreign investors started investing back in the United States. The capital needed to finance the East Asian countries was gone, and these economies with high debt-to-equity

We use the term "reserve currency" when we mean other countries ' use of dollars in international trade. If Sweden, for example, buys goods from China, the goods can be paid with American dollars instead of Swedish Krona. The methodological approach to address how, when and why the dollar became the world’s reserve currency will be supported by a historical and statistical analysis. With a better understanding on how the U.S dollar become the most powerful currency we can advance to understand the cost and benefits of it.

The financial crisis in the early 2000’s has raised questions on the linkage between the monetary policy and the financial markets. This document will analyze the impact of a country’s net balance of payments on the exchange rate of the country’s currency. An analysis of the impact of a country’s net level of interest rates and nominal inflation rate on the country’s exchanged rate will also be reviewed. In addition, a review of the growth in a country’s Gross National Product will be analyzed to determine if there is any relationship to a country’s trade deficits. Finally, a recommendation will be presented on how monetary policies could be employed in the future.

The third article talks about how Thailand's prediction of economic growth is now at 3.9 percent, a 0.3 percent increase from an earlier forecast. Tourism and exports have recovered a lot better than people expected, and the rate of public spending has increased. By year's end, the export prediction is expected to increase by 7.5 percent, and inflation is forecast to increase by 0.6 percent. The economy itself is believed to grow each year between 4 percent and 5 percent, on average, until

As the economy in Thailand began to slow, foreign confidence in it began to falter as well. Just like many other currencies, the value of Thai currency (the Baht) had been pegged to the US dollar in order to ensure stability. At the time, however, the robust US economy was raising the value of the dollar, therefore the value of the baht, causing some foreign investors to believe that it was overvalued. Investors began selling the baht in exchange for the US dollar because the dollar 's value had a more certain future. Speculators jumped on the bandwagon and began selling their supply of baht in record amounts in order to lower its value and realize a profit. In July of 1997, Thailand 's central bank devalued the baht – or unpegged and lowered its value from the dollar in an effort to stop the sudden and massive sell off in order to restore confidence in the currency. When used in non-emergency situations, devaluation of a country 's currency can work to its advantage. When Thailand devalued the baht, it was able to lower the price of Thai goods in US dollar terms, which made making those products more competitive in foreign markets. Devaluation also tends to attract foreign investment in the country. However, this created an emergency situation, and devaluation of the baht only revealed the fundamental weaknesses in the Thai economy and banking system which continued in the domino effect to other Asian countries.

In general, an independent, transparent and credible central bank, “strong fiscal position”, sound financial system with rigorous regulation and supervision and flexible exchange rate is vital. Furthermore, a more effective strategy is supposed to “phase in” following successful disinflation (Mishkin, 2000, p.106-p.107).

A fixed exchange rate regime will offer an economy greater stability in international prices and therefore encourage trade. Additionally, for developing countries a fixed rate will assist in promoting institutional discipline as the country will adopt restrictive monetary and fiscal policies that foster an anti-inflationary environment. A significant weakness of a fixed rate is that it is subject to destabilizing speculative attacks which could lead to financial meltdowns and devastating economic contractions. A floating exchange rate regime allows central banks to combat macroeconomic factors such as unemployment, inflation, and interest rates without having to worry about the effect on exchange rates. However, developing countries whose economies depend on trade will be reluctant to allow their exchange rates to fluctuate freely.