The emerging market crises of 199–2002 were worsened because of rampant speculation. Do speculators cause such a crisis, or do they simply respond to market signals of weakness? How can a government manage foreign exchange speculation?
Answer to relevant QuestionsSwings 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. What is meant by the term “fundamental equilibrium path” for a currency value? What is “noise”? Define the following terms: a. Foreign exchange exposure. b. The three types of foreign exchange exposure: Give an example of a transaction exposure that arises from borrowing in a foreign currency. What is hyperinflation, and what are the consequences for translating foreign financial statements?
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