1. What were the origins of the Asian currency crisis? 2. What role did expectations play in the Asian currency crisis? 3. How did the appreciation of the U.S. dollar and depreciation of the yuan...

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Running Header: Currency Crisis
Title: Currency Crisis
Presented By:
Presented To:
Date: 21/08/2017
1. What were the origins of the Asian currency crisis?
Asian Financial Crisis of 1997
The Asian Financial Crisis of 1997 was a financial crisis that impacted numerous East Asian countries including Thailand, Malaysia, Indonesia, Philippines, South Korea and Singapore. After euphoric growth rates these tiger economies saw their stock markets and currencies lost around 70% of their value.
The Origin of the Asian financial crisis can be tracked back to 2 July 1997. The day the Thai Government made announcement of managed float of the Baht and sought for technical assistance' from the International Monetary Fund (IMF). Within a week, Philippines and Malaysian Governments had to start defending their own currencies. By the end of the month crisis has reach a 'currency meltdown' state. Soon after other East Asian economies Taiwan, Hong Kong, Singapore and others were pulled into the crisis to varying degrees. These currency devaluations led to high inflation and a host of other problems that spread as wide as South Korea and Japan.
By 27 October 1997, the crisis rippled into world wide impact, with Dow Jones industrial average falling by 7.18 per cent and dragged stock exchange to its historical fall and eventual suspension of trading.
Beginnings
There is now fairly common agreement that the affected Asian currencies had been out of line with their economic fundamentals. Most of these East Asian economies but Japan had fixed exchange rates pegged against the $US. The appreciation of the US Dollar against the Japanese Yen and third country currencies meant a decline in the competitiveness of these East Asian countries. To retain the export attractiveness, these countries continued to try to defend over-valued exchange rates for far too long, and long after everyone realised that the currency was over-valued.
In addition to the currency misalignment, there were other factors that have been implicated in the Asian crisis. Asia Financial Crisis began with a series of asset bubbles like many other financial crises. Phenomenal growth in the export based economies in Asia led to huge in-flows of foreign direct investment, which in turn led to surge in values of real estate, corporate and public spending projects - all funded largely by heavy short term borrowing from banks. Easy money and ready investors led to over supply of assets and reduction in the quality of the assets.
US Federal Reserve started raising the interest rates to combat inflation. This has made US dollar more attractive and it started appreciating. As the exports started looking less attractive from those Asia countries whose currencies are pegged to US dollar, foreign investments started flowing to US. Early 1997, the property bubble started showing the sign of burst with bankruptcy of Finance One and default of Somprasong Land. Currency traders began their successful attack on Thai baht’ peg to US dollar and it led to eventual devaluation of...