A Case Study Of Hong Kong’s Financial Crisis In 1997-1998

A Case Study of Hong Kong s Financial Crisis in 1997-19981 )The Asian Financial Crisis was a result of massive speculative attacks in the foreign exchange market on local anesthetic currencies , specifically on East Asian currencies . The problem started with the devaluation of the Thai baht in 1997 which then spread to speculative attacks on opposite Asian currencies . This resulted in economic crises in Malaysia Indonesia , Philippines , Korea , Singapore , china , and Hong Kong (Kawai 1998 ) The reasons for the spread of economic decline in the countries were easily traced and the resulting cause were similar although varying in the degree of intensity . A clear difference between Hong Kong and the other Asian countries touched by the 1997-1998 economic crisis however , was in the way that Hong Kong handled the flagellum to its economyCompared to the other Asian countries , Hong Kong was able to continue its succeed when the monetary crisis first broke come on . This was , however maintained at a great cost . Monetary authorities of the kingdom spent approximately US 1 billion in to suffer the currency . Although other countries also undertook mass efforts to defend their currencies Hong Kong was the only one to be able to maintain its nail . This however , was only short-change-term . The economic attack continue and Hong Kong found itself needing to increase its inflation rates . Other countries such as the Philippines resorted to this strategy as well in . What do Hong Kong different in its strategy , however , was the government s purpose reversal from being a passive regulator to an restless market participant . The government ended up use approximately US 15 billion in buying shares , blue-chip shares , in various companies . This active intervention insure the relative stability of the Hong Kong market as compared to the other Asian markets during that time2 )Hedge funds , by their very nature , utilize opportunistic trading strategies on a leveraged basis .

For a market with a limited liquidity such as that of Hong Kong s , a small gamble on the part of a large hedge fund could result in a large transaction that could have large-scale effects on the said market . For Hong Kong s economy , there have been numerous instances wherein hedge funds have tried to exploit the local market . This is not to say , however , that Hong Kong has not piece up a valiant effort to protect and maintain the stability of its vulnerable market - owing to its small size and low liquidity statusAccording to Kara Tan Bhala (1998 , the mechanism employed by hedge funds to try and make money out of Hong Kong involves two steps Initially , Hong Kong equities and stock-index futures are sold short by speculators . Next , the speculators resort to short-selling the Hong Kong dollar . Short-selling the dollar go forth force the Hong Kong Monetary Association to try to maintain the peg of the Hong Kong dollar to the US dollar . This would mean resorting to an increase in interest rates and to buying the local currency . divide prices on...If you want to get a full essay, order it on our website: Ordercustompaper.com

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