Asian Crisis

A country doesn't have to disclose the amount of foreign reserve it holds

* Information held confidential by the IMF

*

IMF lender of last resort.

* Provide government loans below market rates

The Role of the World Bank

* 75% vote required

* the US has veto power

CURRENCIES IN CRISIS

Plain Talk: It's time to resume buying American

* It's time to get back to buying American

In the forward market, when one currency is stronger (worth more), we say it is trading at a premium versus the other currency; and therefore the other currency is trading at a discount (worth less) in the currency pair

* eg. spot: 1 USD = 58 INR; 3 month forward: 1 USD = 55 INR

* forward market, INR is trading with premium

* as long as there's a price difference between a spot and forward rate, one currency will be stronger than another

VIDEO: BASED ON BEST-SELLING BOOK "The Commanding Heights: The Battle for the World Economy"

Questions:

1. What were the causes of the Asian Financial Crisis?

2. What does a drastic reduced currency value mean for citizens of that nation? For other nations?

3. Based on this video, what should nations be doing now to lessen the chance for similar crises?

(the difference in pay in rural vs urban China) => the biggest in the world

* early 90's

* David Lee

* left the country; now coming back

* free-trade zone near Shanghai (no tariff)

* china in the midst of transformation

* China welcoming foreign investment

* people left rural home to urban areas

* largest wave of human migration in history

* 80% of world's future economic growth are expected to occur in cities

teacher in rural area => move to urban

* 100/month => 3000/month

Singapore

* "tiger economy" of Southeast Asia

* since 1970's SEA had become world class exporters => Asian economic miracle => rapid growth (10% or more growth)

Tokyo, Japan

* the world's second largest economy

* fallen into economy slump (were in bubble economy)

* Japanese banks held 1 tril in debt

* very closed economy => you don't see many foreigners

* socialistic sector

* competitive export sector (Sony, Toyota)

THE GLOBAL CONTAGION

Thailand

* easy money, easy profit

* 90's => open up market

* lower interest rates offered by banks

* loans to Thai businesses tripled

* Americans and Europeans encouraged inflow of money

* banking system, securities laws were not well developed

* Thai CB has kept inflation relatively high

* IMF began to worry that Thailand was heading for a fall

* Muang Thong Thani => built for 700,000 people; no one was moving in

o finaced