Textbook Problem

On August 26,1998 , the day that Russia decided to let the ruble float freely, the ruble declined by approximately 50 percent. On the following day, called "Bloody Thursday." stock markets around the world (including the United States) declined by more than 4 percent. Why do you think the decline in the ruble had such a global impact on stock prices? Was the markets' reaction rational? Would the effect have been different if the ruble’s plunge had occurred in an earlier time period, such as four years earlier? Why?