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International Finance

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Added on  2023-06-08

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This article provides an overview of international finance and the lessons learned from the Asian crisis of 1997. It also discusses the ways in which multinational enterprises can manage foreign exchange risk.

International Finance

   Added on 2023-06-08

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INTERNATIONAL
FINANCE
International Finance_1
Table of Contents
INTRODUCTION...........................................................................................................................3
Emerging market policymakers took from the Asian crisis of 1997...........................................3
Ways in which multinational enterprises can manage foreign exchange risk. ...........................6
CONCLUSION..............................................................................................................................10
REFERENCES................................................................................................................................1
International Finance_2
INTRODUCTION
The study of economic or fiscal interactions between different nations is known as
international finance. In other words, also known as international macroeconomics refers to the
branch of monetary interactions which highly emphasize on the foreign exchange rate and
foreign direct investment. The significance of international finance is that it assist in getting
about the investment in relation to the debt securities and tally the inflation rates. The project
will address the lessons which are being learnt from the emerging Asian crisis of 1997 and how
these lessons are pertinent in today's economic market. The research will further analyse the
ways through which multinational enterprises helps to manage the foreign exchange risk with an
illustration of empirical verification.
Emerging market policymakers took from the Asian crisis of 1997
Wise, Armijo and Katada, Eds., 2015 The Asian Financial Crisis of 1997 was a duration
which had a bad impact over the worldwide. This was initially started from Thailand due to the
lack of foreign currency which resulted in the overburdening of foreign debt. Financial crisis
spread like a disease and major countries like Indonesia, Hong Kong, Malaysia, South Korea,
Vietnam, Taiwan witnessed slumping currencies, devalued stock markets and an increase in the
private debt. The primary reason behind the crisis was hot money bubble and the currency
exchange rate collapse (Gulzar and et.al., 2019). These causes are disputable and complicated.
Hot money bubble considered to be one of the biggest cause where the most of the Asian
countries saw an increase in the GDP by 8-12% which was also called as “Asian Economic
Miracle”. It was boosted with the help of foreign investment and rise in exports. In between
1990s, USA was recovering from recession by raising the interest rate which results in attracting
the money. Asian countries invested in the US dollars resulting in hurting the export growth. The
massive outflow of capital caused the Asian country's currency being depreciated.
The road map to recover from the monetary crisis has been a long path and took a few
years to bring economy back on track. Most of the countries are trying to recover from the 1997
crisis which took them years, but they are not aware that “Subprime Mortgage Crisis” of 2008
was waiting which resulted in great recession in global economic growth. After the crisis, central
bank, policy-makers and regulators are provided with extraordinary responsibility to combat
these crises in near future. Most of the countries framed new policies considering the fact that
International Finance_3
there could be a more crisis happen in near future but this lesson didn't benefit them. The global
debt continued to grow by adding new borrowers. Developed countries had also witnessed
government debt due to decrease in the tax revenue and an increase in the welfare of the society
(Haroon and Rizvi, 2020). The debt was exceeded the annual GDP of the countries and anti-EU
movements had badly affected the British government to think about the future spending. The
another lesson which was taken up by the aggrieved countries witnessed a significant fall in the
household debt which was relatively high during the crisis. Other types of debt also decreased
such as unexpected expenses, low rate on students loan, reduction in the credit card and auto
loans. The crisis had created a revolution in the economic policies all over the world and many
countries tried to strengthen banks against the future crisis. The largest banks had increased the
scope of trading activities and framed new regimes for the new businesses. Another biggest
change was curtailing the international financial system so to less flow of money across the
borders. The banks had more focused on the domestic growth rather than global one. It results in
the decline of the interbank borrowing. UK, US and Swiss banks reduced their international
lending which helps to operate more branches within the country (Lund and et.al., 2018). This
service played an important role for trade-financing flows. Foreign direct investment was the
new trend which helps to promote stability. It was the important method of increasing the capital
flow.
Jebran, Ullah and Mirza, 2017 there are many economists who are believed that Asian
crises are not market psychology or technology but due policies which is twisted motivator
within investor and borrowers relation. It can be said that at that time large quantities of credit
become available in order to generate high leveraged economic climate which can be force to
increase the asset prices in order to unsustainable level or especially those non-productive sectors
of economic system on the basis of real state. That process are eventually began for collapse or
causing individual and an organisation by default on debt obligations.
Korinek, 2018 others economists has given their opinion in order focusing on different
type crises which can be compared with financial markets. Author has said that there are
comparison of classic bank run in order to promoted buy sudden risk also at that time were
monetary or contraction fiscal policies that can be implemented by government on advice of IMF
or other crises. On the basis of economic reforms it has been analysed that there are different
type of structural adjustment package which can be called as situation struck countries in order to
International Finance_4

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