Financial Crises in Asia. Brainteaser A prison warden tells 16 prisoners there is a switch in the room, currently off The prisoners are allowed to meet.

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Presentation transcript:

Financial Crises in Asia

Brainteaser A prison warden tells 16 prisoners there is a switch in the room, currently off The prisoners are allowed to meet today but never again Every day, 1 prisoner is chosen at random to visit the switch room and he can choose to flick the switch as many times as he wants If someone realizes at some point that every prisoner has visited the switch room, they all go free, if not, they all die.

Brainteaser Use a person as a counter!

Market Update European Inflation at 0.5%, Thurs meeting coming up N/S Korea exchange fires across sea borders China corruption clampdown on Zhou Yongkang Greece is safe till May

The Asian Financial Crisis Thailand – government forced to float the Bhat and de- peg from USD – Lots of efforts to prop up the Baht (largely RE driven) 1997

Asian Financial Crisis Current Account = X – M + Net Income from abroad + Net current transfers ALSO Current account = net foreign transfers CA deficit is known as absorption – Why? What do you need to keep a fixed exchange rate? Primer of Current Account

The Asian Financial Crisis Difference between hot money and investments What did Thailand, South Korea and Indonesia have in common? – Current account deficit + fixed exchange rate – What about Hong Kong then? Reserves and public share buyback What do you think happened to interest rates? Catalyst: George Soros 1997

Asian Financial Crisis Speculative short selling of currency  rapid currency decline (Indonesia) – Worries about debts in Indonesia (does this make sense?) The crash itself

Aftermath Oil demand drops against a backdrop of huge increases in Capex in large oil firms in Russia LTCM collapse In Japan: Sanyo Securities, Hokkaido Takushoku Bank In HK: Peregrine Investments Japan enters recession Russia

Other notable Crises 2003 SARS 2008 GFC

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