Essays on Thailands Currency Crisis Assignment

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The paper "Thailands Currency Crisis " is a great example of a finance and accounting assignment. The two characteristics which define a country experiencing a financial crisis are a drop in the currency value and a drop in the traded equity prices. There are however two main interpretations as to what caused the crisis in Asia. One of them is that there was a sudden shift in the market expectations and confidence. This was as a result of panic from the domestic and international investors emphasized by the faulty policy response of the international monetary fund.

The other interpretation is that fundamental imbalance of structural and policy distortions in those countries covering that region (Frankel & Kose 1996). Further to this, the moral hazard problem accelerated the financial vulnerability especially due to market liberalization in the 1990s leading to exposure of the market fragility with the macroeconomic and financial distress which was experienced in 1997. The crisis exhibited an interrelation between the corporate, financial and international levels. The corporate level involved political pressures in the maintenance of high economic growth rates which had led to public guarantees of private projects but the production plans had overlooked the risks and costs involved in those investment projects which resulted in the profitability of the projects below (Asian Development Bank 2003). Under the financial problem, the banks had excessively borrowed from abroad to lend domestically.

However, structural distortions of the banking sector such as laxity in supervision, weak regulation capital adequacy ratios which were low, lack of compatible deposit insurance schemes, corrupt lending practices and lack of market criteria to credit allocation led to the buildup of weaknesses in the financial sector. Internationally, the banks had neglected the standards of sound risk assessment to lend large amounts to the region.

Most of the foreign debt was in short term unhedged and foreign currency-denominated obligations and that large fraction of the short term liabilities to the foreign reserves was an indicator of financial fragility.

References

Asian Development Bank, 2003. Asia Economic Monitor 2003, July 2003 update.

Frankel, J. and A.K. Kose, 1996. “Currency crashes in emerging markets: an empirical treatment”,

Journal of International Economics (41), pp. 351-366

Radelet, S. and Sachs, J., 2001. “Lessons from the Asian Financial Crisis”; Global Financial Crises

and Reforms; Cases and Caveats (Routledge, London 2001).

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