“The main argument against Mark 1 models of currency crises is not their assumption of an ‘asymmetry between super-smart speculators and super stupid governments’, but that they do not fit the facts.” Discuss.
Many countries try to fix their exchange rate to a currency or a group of currencies by intervening in the foreign exchange markets. Fixed exchange rates can be fragile as they are vulnerable to speculative attacks and currency crises. For example, if investors fear the currency will soon be devalued, they will sell it, causing the currency to depreciate in value. However, governments still do so as they bring advantages. One of the advantages is to reduce exchange rate uncertainty to give confidence to domestic and foreign investors. Besides, lower exchange rate can make exports more competitive. Furthermore, they do so to achieve a quick reduction in inflation and also to import the credibility of the foreign central bank’s monetary policy. In order to have a fixed exchange rate for a currency, a government has to fix the money supply in accordance with the fixed exchange rate. The central bank controls the high powered money (ht) directly and the money supply (mt) indirectly via money multiplier (X). mt = Xht
Therefore, money supply can be fixed as long as the high powered money is held constant. The high powered money is the sum of domestic credit (dt) and official international reserves (rt). Domestic credit includes domestic government bonds and loans to domestic banks while official international reserves include foreign international reserves and gold. ht = dt + rt
To ensure the high powered money is fixed, the central bank can influence the nominal exchange rate by buying and selling the international reserves wh...
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Besides, there are also the third generation models which emphasise the balance sheet effects associated with devaluations especially firms or banks with foreign-currency debt. The key argument was that a currency depreciation caused by speculative attack would sharply worsen the balance sheet as the debt is relatively a lot more expensive now even though the debt value has not changed. This in turn would affect the economy as there would be lesser investment from domestic firms and banks, which would cause further currency depreciation, and so on.
In conclusion, there are actually three different generations of models that can be used to explain the currency crises. If one does not fit into the first model, we can always fit it into either the second or the third generations of models. Also, there might be more models waiting to be explored in the future.
The financial crisis of 2007–2008 is considered by many economists the worst financial crisis since the Great Depression of the 1930s. This crisis resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. The crisis led to a series of events including: the 2008–2012 global recessions and the European sovereign-debt crisis. The reasons of this financial crisis are argued by economists. The performance of the Federal Reserve becomes a focal point in this argument.
The central bank of Mexico has built up at high level of international reserve. The huge reserve was the result of the Mexican government?s policy of exchange intervention to prevent large fluctuation in the peso. In the beginning of 1994, the reserve amounted to US$26.4 billion but was depleted to a low US$6.7 billion in Mid Dec, flagging red light that the exchange mechanism had been pushed to the limit and the government can no longer hold on to the pegged peso to US dollar.
During the 1990’s there have been many currency crises around the world. For example, Britain and Sweden in 1992 to Mexico and Argentina in 1995 to East Asia's rim in 1997 to Brazil in 1998-1999. These crises are better known as financial “panics”. There are many different things that can trigger a financial crisis but I will explain Krugman’s classic example of the “panic”. International investors in New York, Frankfurt, London, and Tokyo are known as main investors. These main investors invest their huge amounts of money in countries that they think are doing well. From this “hunch” they flood their billions of dollars, about $70 billion into Asia, into a country’s economy. If they feel that they have made a poor financial investment they quickly pull their money out of the market at huge losses. These main investors cause a stampede of smaller investors to also pull their money out of the economy at sale prices. This causes a panic and seems to have a snowball effect. So in effect the country that once was flooded with billions of dollars is left off worse and soon is facing economic troubles. This panic has a tendency to effect surrounding countries.
The purpose of this is to draw attention to the invisible government which controls the United States. One of the means of control is the Federal Reserve System. Many of us have seen the recent decline of the dollar in the news. We will address this in terms of the Federal Reserve System’s control over the value of the dollar. Much of this is a concentration of quotes by noteworthy individuals such as Economists, Presidents, and Congressmen.
This is a monetary policy which involves the government’s intervention to curb disorderly trends in the foreign currencies level. In case the quantity of a local currency goes down, the central bank uses the foreign currencies to buy its currency from the foreign economies. This ensures that the economy has ample home currency and thus enough money in circulation.
Weiss, M.A. (2009) ‘The Global Financial Crisis: The Role of the International Monetary Fund’, CRS Report for Congress.
Thailand implements a controlled floating exchange rate system, pricing to market forces on the Thai baht, and the Thai central bank would only intervene in the market when necessary, in order to avoid excessive exchange rate volatility to the expected impact of economic policies. At present, the global economic slowdown, domestic demand is not good in Thailand. In order to keep the country's export competitiveness, the Bank of Thailand is more inclined to let the baht weaken.
This is an exchange rate system where the currency exchange rate system is allowed to be determined by the forces of demand and supply. Here, the central bank and the government do intervene to cub extreme exchange rate fluctuation by adopting monetary or fiscal policy.
The stability of currency values plays a significant role for economic and financial stability. It is not difficult to see the exchange rate fluctuations are widely regarded as damaging. As the movements of the exchange rate have significant and large effects on the trade balance, resource allocation, domestic prices, interest rate, national income and other key economic variables. Then can exchange rate movements be predicted by these fundamental economic variables?
...nces discussed above. Right now, the global economic is recovering, but the study of reasons of the crisis still teaches many countries a lesson on how to build a solid financial system and how to deal with other macroeconomic problems.
The stock market is an essential part of a free-market economy, such as America’s. This is because it provides companies the capital they need in exchange for giving away small parts of ownership in their company to investors. The stock market works by letting different companies sell stocks to gain capital, meaning they sell shares of their company through an exchange system in order to make more money. Stocks represent a small amount of ownership in a company. The more stocks a person owns, the more ownership they have of that company. Stocks also represent shares in a company, which are equal parts in which the company’s capital is divided, entitling a shareholder to a portion of the company’s profits. Lastly, all of the buying and selling of stocks happens at an exchange. An exchange is a system or market in which stocks can be bought and sold within or between countries. All of these aspects together create the stock market.
The intensely competitive, action-oriented, profit-hungry world of investment banking can seem like a bigger-than-life place where deals are done and fortunes are made. Investment bank includes but is not limited to bringing an established company to the market, by that I mean taking company with the capabilities but not capital of expanding, and raising money through other investors or the stock market (IPO) for a commission, I chose this field because of my personal experience with my father and his company, I’ve seen him go from starting off as a cold calling broker, to running a brokerage firm, to starting a brokerage firm, all the way to having his own investment firm. I feel like I would do better with jobs where you set your own hours and work at your own pace. A lot of the work is commission based so the more your work the more you make, this would also benefit me because it would drive me to work more, money is my motivation. To be hired you will need good people and communication skills, highly analytical skills, high ability to synthesize and high creative ability. You will also need experience in modeling, valuing companies, and financial accounting.
A few sources of finance are short term and ought to be paid back within a year. Other sources of finance are long term and can be paid back over several years.
Sources of finance are the different methods for a business to earn and obtain money. There are lots of ways to obtain money but two large basic sources of finance, which are the “owner’s capital” and “capital borrowed”. They are also called internal sources of finance and external sources of finance. In those sources, they are mainly divided in two groups, which are short-term sources of finance and long-term sources of finance.
Never have I ever climbed a mountain peak. As a child, I imagined myself conducting expeditions in deep-frozen pathways, leading amateur explorers to the top of the world, and instructing rookies in surviving harsh blizzards. Even though slightly altered, my childhood dream has been achieved. I led a team of fellow classmates, in my Strategic Management course, to the success summit of a financial competition. Over the course of a semester, I and my teammates were supposed to create and manage a company of the IT industry, in a computer-simulated environment, along with other four rival teams. I dealt with strategy and financial matters of our virtual enterprise, while my colleagues were working on marketing and manufacturing. During the four months of the exercise, I have experienced finance from various aspects: capital budgeting, through selecting favorable investment for upcoming quarters; debt management, by assessing the necessary amount and efficiency of loans; profitability analysis and dividend policy, which had been used to compile the company’s general performance index. Working in a multinational team, which included an American, a Norwegian and a Moldovan, strengthen my negotiations skills, as well as flexibility and cooperation. But above all, this experience intensified my passion for finance. Of course, a pleasant bonus was the fact that, in the end, our company’s financial performance was six times the performance of second-best team.