nancial Crisis 1997-1998)There are still many other financial crises over centuries. However, most of those crises cause the great depreciation on exchange rates. I will discuss the most recent issue in this century: the Asian Crisis.Asian CrisisThe excessively lending, borrowing and spending and an overly view about the future growth and a poorly banking system. This creases “self-fulfilling”. Investors think only that there are always profitable investments, low interest rates and stable currencies. Most other investments may not be such profitable at that stage. They were still making an expansion decision because of government encouragement and poorly banking system. However, investors were sensitive for the profitability. Then they start to doubt the highly leverage firm that could pay the debt or not. Finally, they started to pull the money out of sharemarkets and debts in those countries. Some of the firms closed down. However, it was not the end of the story. There was a second attack to corporate firms. Because of pulling out the funds from firms, the foreign investors were trying to exchange back to their own currencies. Then the exchange rate started to drop down sharply. Some importers were losing much money and bankrupt in this period. However, some exporters also suffered in this depreciation of exchange rate because the costs of raw materials imported from overseas were more expensive than before.Currency Crisis made the government to be panic. Then the government was trying to stablise the exchange rate by increasing the rate of interest. However, this action slowed down the investments again and more companies had more problems in paying their debts. There was a strong linkage between Asian countries meant that some companies borrowed from foreign companies then to make the foreign companies went bankrupt too. It is because the borrowers could not pay their debts and the feign lenders cou...
