Swings in foreign direct investment flows into and out of emerging markets contribute to exchange rate volatility. Describe one concrete historical example of this phenomenon during the last 10 years.
Answer to relevant QuestionsWhat were the main causes of Thailand’s crisis of 1997? What lessons were learned and what steps were eventually taken to normalize Thailand’s economy? Explain how the asset market approach can be used to forecast future spot exchange rates. How does the asset market approach differ from the BOP approach to forecasting? Ultimately a treasurer must choose among alternative strategies to manage transaction exposure. Explain the two main decision criteria that must be used. Explain why foreign currency cash balances do not cause transaction exposure. What is the primary difference between losses from transaction exposure, operating exposure, and translation exposure?
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