Exchange Rate Crisis: Russia and South Korea's Economic Analysis

This report examines the exchange rate crises of Russia and South Korea, comparing their responses and outcomes. The Russian government's inability to implement effective economic reforms during the 1998 financial crisis, leading to a loss of investor confidence, devaluation of the ruble, and eventual default on foreign debt, is analyzed. In contrast, South Korea's handling of the 1997 financial crisis, including the implementation of a tight monetary policy by the IMF, nationalization of major banks, and diversification of funding sources, is explored. The report highlights the benefits of these strategies, such as increased awareness of portfolio diversification, and drawbacks, such as severe financial losses and political turmoil. The analysis includes key references and provides insights into the importance of financial stability and effective crisis management.

Running head: EXCHANGE RATE CRISIS: RUSSIA VERSUS SOUTH KOREA
Exchange Rate Crisis: Russia Versus South Korea
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1EXHANGE RATE CRISIS: RUSSIA VERSUS SOUTH KOREA
Russia
The Russian Government could not implement well-functioning economic reforms to tackle the
financial crisis of 1998 (Klapper, Lusardi & Panos,2013). Investors lost confidence and sold
rubles, making them further lose value. The country’s Central Bank was forced to expend its
foreign reserves in order to defend domestic currency, making Russia resort to default on its
foreign debt.
South Korea
To deal with the financial crisis of 1997, South Korea stabilized its currency market. The IMF
introduced a tight monetary policy. Korea prevented a worsening of its financial situation by
limiting its credit to the private sector (Pyo, 2018). Major Korean banks were nationalized.
Another reason that prevented South Korea from defaulting on its debt was diversification of its
funding sources.
Benefit and Drawback
The default made Russian investors aware of the importance of portfolio diversification. The
major drawbacks were severe financial losses in the banking sector, political crisis and extreme
economic turmoil.

2EXHANGE RATE CRISIS: RUSSIA VERSUS SOUTH KOREA
References
Klapper, L., Lusardi, A., & Panos, G. A. (2013). Financial literacy and its consequences:
Evidence from Russia during the financial crisis. Journal of Banking & Finance, 37(10),
3904-3923.
Pyo, H. K. (2018). The Financial Crisis in South Korea: Anatomy and Policy Imperatives.
In Asian Contagion (pp. 151-169). Routledge.