Financial crisis in Thailand caused by speculative attack. Math mechanics of Thai banking crisis.
Lesson summary: the foreign exchange market. Practice: The foreign exchange market.
Next lesson. Effect of changes in policies and economic conditions on the foreign exchange market.
Current timeTotal duration Google Classroom Facebook Twitter. Video transcript Let's say we've got two countries: country A and country B And at the start of our little hypothetical thought experiment they have a very stable exchange rate, maybe it's one for one. Every A, if you were to go into a foreing currency markets, you could get a B for it.
How much forex reserve is too much
So there's this kind of this stable supplying demand between this two currencies. Now let's say for whatever reason folks in A start to believe that country B is the hot place to invest. They want to buy country B's real state, they want to invest in country B's stock market.
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So you have this huge supply of A comming out to the foreign exchange markets but you still have the same amount of B that wanna go the other way, maybe, you know, these are maybe there to either invest in country A or maybe buy some of country's A exports, or whatever it might be. But if we just let this happen on it's own when all of a sudden there's a much larger demand for converting A into B than converting B into A, you'll have a situation where the B will just get more expensive.
There's more demand for B than there are for A. It'll get more expensive in terms of A. So if you look at it from country A's point of view, you're now having to pay more A per B At a completely equivalent statement from country B's perspective you now have to pay fewer B's per A. Main Menu Utility Menu Search. Citation: Levy-Yeyati, E.
Download Citation. Download cid-wpholding-exchange-reserves. Abstract: Recent studies that have emphasized the costs of accumulating reserves for self-insurance purposes have overlooked two potentially important side-effects.