1. Was the depreciation of the Asian currencies during the Asian crisis due to trade flows or capital flows? Why do think the degree of movement over a short period may depend on whether the reason is trade flows or capital flows?

2. Why do you think the Indonesia rupiah was more exposed to an abrupt decline in value than the Japanese yen during the Asian crisis (even if the home countries’ economies experienced the same degree of weakness)?

3. During the Asian crisis, direct intervention did not prevent depreciation of currencies. Offer your explanation for why the interventions did not work.

4. During the Asian crisis, some of the local firms in Asia borrowed dollars rather than local currency to support their local operations. Why would they borrow dollars when they really needed their local currency to support operations? Why did this strategy backfire?

5. The Asian crisis showed that a currency crisis could affect interest rates. Why did the crisis put upward pressure on interest rates in Asian countries? Why did it put downward pressure on U.S. interest rates?

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