Research On The Asian Currency Crisis 1997 Finance Essay - Free Essay Example

Sample details Pages: 7 Words: 2048 Downloads: 2 Date added: 2017/06/26 Category Finance Essay Type Narrative essay Did you like this example? According to Kaminsky and Reinhart, 1999, there have been many currency crises during the post-war era. They can be classified as first-, second- or third-generation currency crisis. A currency crisis is an episode in which the exchange rate depreciates substantially during a short period of time. Don’t waste time! Our writers will create an original "Research On The Asian Currency Crisis 1997 Finance Essay" essay for you Create order FIRST GENERATION CURRENCY CRISIS MODEL: Krugman (1979) and Flood and Garber (1984) models come under first generation models. It states that, traders speculate against fixed exchange rate in order to profit from an anticipated speculation. In first-generation models, the collapse of a fixed exchange rate regime is caused by unsustainable fiscal policy. A hallmark of first-generation models is that the government runs a persistent primary deficit. The key ingredients of a first-generation model are purchasing power parity (PPP), government budget constraint, timing of deficits, money demand function, governments rule for abandoning the fixed exchange rate and the post-crisis monetary policy. In first-generation models the government follows an exogenous rule to decide when to abandon the fixed exchange rate regime. This model suggests that- The crisis is due to the poor government policy. The source of the upward trend in the shadow exchange rate is given by the increase i n domestic credit. Even though the crisis is sudden, it is a deterministic event: the crisis is inevitable given the policies and the timing is in principle predictable. These models are not harmful and it doesnt have effect on output. The crisis determination is a future policy stances that investors foresee, not the one observed in the past. The importance of policy choice in deciding to quit the fixed exchange rate regime. In fist generation models, there is no relation between capital flight and abandonment of the peg. There is no long-run equilibrium exchange rate. SECOND GENERATION CURRENCY CRISIS MODEL: These models are mainly based on the interactions between expectations, macro economic trade-offs and decisions. These are characterized by multiple equilibria and the interactions between market expectations and policy outcomes. In second-generation models the government maximizes an explicit objective function (Obstfeld, 1994). This maximization problem dictates if and when the government will abandon the fixed exchange rate regime. These differs from the first generation models in no irresponsible policy, no predictability of the crisis and there is no negative impact on employment and output if the country leaves the peg. 2. MORAL HAZARD Moral hazard is a situation where one party has more information(usually the party that is insulated from the risk) than the other in a transaction (usually the party paying for the negative consequences of the risk). It arises because an individual/institution does not take the full responsibilities of its doings and also from principal-agent problem. EXPANDED GOVERNMENT GUARANTEES FOR BANK LIABILITIES: A key element of policy crisis is the government provision of a financial safety net for financial institutions. So governments have felt obliged to go beyond the usual support measures, moving to expand existing guarantees and to introduce new ones. The valuation problems and other related actions like loss sharing arrangements for assets and capital injections were appeared to prevent further loss of confidence on the part of market participants by raising that the retail depositors and other creditors would continue to provide a stable source of funding for banks. It leads in reducing the threat of insolvency of these entities. By doing this, the government earns a small fee from the debt issuer for lending out its top credit rating like as financial guarantee insurance companies,. There are no further hidden costs associated with these measures. Even if guarantees do not generate significant upfront fiscal costs, they create large contingent fiscal liabilities, as well as other potential costs that may arise as a result of distortions of incentives and competition. Another important issue related to the additional guarantees is their pricing. In this respect, the potential distortions should be limited to the extent that government guarantees are priced appropriately. By contrast, distortions may arise because when guarantees are offered at prices that are substantially lower than market or some form of fair prices. WORKING OF CIRCULAR PROCESS IN REVERSE TO CAUSE ASSET PRICES COLLAPSES The mechanism of crisis involved that same circular proces s but in reverse: falling asset prices made the insolvency of intermediaries visible, forcing them to cease operations, leading to further asset deflation. This circularity explain both the remarkable severity of the crisis and the apparent vulnerability of the Asian economies to self-fulfilling crisis. The boom-bust cycle in Asian economies experienced in the investment and in asset prices. It showed that assets were in imperfectly elastic supply. In the first period, investors bid for fixed assets(land) and set their price. In the second period they receive rents, which are uncertain at the time of bidding. The intermediaries can bid on the land based not on the expected value of future rent but on the Pangloss value. So all assets will end up owned by intermediaries, and the price of the assets will be double what it would be in an undistorted economy. 3. MORAL HAZARD CAUSING A DEADWEIGHT SOCIAL LOSS Moral hazard is the lack of any incentive to guard against a risk when you are protected against it by the insurance is called moral hazard. It is the phenomenon of undertaking risky corrupt loans and transactions, but knowing that if it fails the state will pick up the tab. In the table 1, one yields $107 million; the other will yield $120 million in favourable conditions (good state), but only $80 million in unfavourable conditions(bad state). The good state and the bad state are equally likely, so that the expected returns on this risky investment are $100 million. But, the owner of the financial intermediary knows that while he can capture the excess returns in the good state, he can walk away from the losses in the bad state. So if he chooses the safe investment he gains a sure 7; but if he chooses the risky investment he gains 20 in the good state, loses nothing in the bad state, for an expected gain of 10. Thus his incentive is to choose the risky investment, even though it has a lower expected return. And this distortion of investment decisions produces a deadweight social loss: the expected net return on the invested capital falls from $7 million to zero. The globalization of trade and finance is changing international relationships at several levels of interaction like in the conduct of commercial activities, in relation to labour standards, the protection of physical environment and in other social and political issues. Both the captivity and the willingness of the parties who control financial capital to supply or withdraw capital from an economy quickly contribute to the rapid development as well as the severity of balance of payments and debt crisis for some economies. The process of globalization leads to an overall increase in the level of economic activity and everyone benefits from this process. The potential benefit of financial globalization will likely lead to a more financially interconnected world and a deeper degree of financial integration of developing countries with international financial markets. The main benefit of financial globalization for developing countries is the development of their financial system (Levine, 2001). There are two main channels through which financial globalization promotes financial development. First, financial globalization implies that a new type of capital and more capital is available to developing countries. Second, financial globalization leads to a better financial infrastructure, which mitigates information asymmetries and, as a consequence, reduces the problems such as adverse selection and moral hazard. 4,5, 6 7. DIFFERENCES BETWEEN THE EXPECTED VALUE OF LAND RENT AND ITS CORRESPONDING PENGLOSS VALUE There is a two period model to explain land value. In the first period, investors bid for land and setting its price. In the second period they receive rents, which are uncertain at the time of bidding. The financial intermediaries will be willing to bid on the land, based not on the expected value of future rent but on the Pangloss value. So all land will end up owned by intermediaries, and the price of land will be double what it would be in an undistorted economy. In an undistorted economy we can solve backwards for the price. The expected rent in period 3, and therefore the price of land purchased at the end of period 2, is 50. Therefore the expected return on land purchased in period 1 is = The expected rent in period 2 (50) + The expected price at which it can be sold (50), for a first-period price of 100. This is also the total expected rent over the two periods. Now suppose that intermediaries are in a position to borrow with guarantees. Again working backward, at the end of period 2 they will be willing to pay the Pangloss value of third-period rent, 100. In period 1, they will be willing to pay the most they could hope to realize off a piece of land: the Pangloss rent in period 2, plus the Pangloss price of land at the end of that period. So the price of land with intermediation in period 1 will be 200. It seems that the multi-period version of the model, in which part of the return to investment depends on the future prices of assets, makes no real difference to the distortion of those prices imposed by guaranteed intermediaries. However, this result changes in a dramatic way once we allow for the possibility of changes in the financial regime that is, if we believe that moral hazard may be a sometime thing. 8. KRUGMANS MODEL JUSTIFICATION ON OCUURANCE OF SELF-FULFILLING FINANCIAL CRISIS A key feature of a self-fulfilling crisis is the collective action of economic agents(Obstfeld, 1996 and Radelet and Sachs, 1998). This collective action may be promoted either by random shocks or the direction given by an obvious market leader. In both cases, if the intrinsic self-fulfillingness is believed to be the main reason for the financial crisis, then relatively little can be proposed in the way of future preventive policies. Self-fulfilling crisis may happen even though the countrys financial management is strong. So tough measures such as regulating sort-term capital flows were proposed to prevent the crisis. Krugman noted that the conflicts among the policy objectives do not necessarily ensure a random occurrence of crisis, even if the policy is formulated endogenously. He also stated that when market participants expect gradual worsening of market fundamentals, the economy tends to have unique equilibrium, and crisis erupts as soon as the economy heads into a crisis zone. If the crisis do not occur when an economy enters the crisis zone, this could be due to both arbitary nature of expectations as well as changing expectations about future fundamentals. 9. EXPLANATION OF ASIAN CRISIS 1997 BY KRUGMANS MODEL The Asian financial crises can be attributed to three major factors. They are international factor, domestic factor and intrinsic market failure. Among these three, both the domestic and international factors didnt responsible to much cause of Asian crisis, but the third one intrinsic market failure was responsible for that crisis. So the Asian crisis was because of a unpredictable self-fulfilling financial panic, which is a phenomenon typical of market failure. A key feature of a self-fulfilling crisis is the collective action of economic agents. This collective action may be promoted either by random shocks or the direction given by an obvious market leader. In both cases, if the intrinsic self-fulfillingness is believed to be the main reason for the financial crisis, then relatively little can be proposed in the way of future preventive policies. Self-fulfilling crisis may happen even though the countrys financial management is strong. So tough measures such as regulating sort-t erm capital flows were proposed to prevent the crisis. The East Asian crisis shed the light on the world economy to prevent or escape from the effects of similar crisis that will result in the future. Such developments relate to the deregulated nature of world financial markets, so that the triggering mechanism of a crisis may be financial. This is not to deny that financial panics may also emanate in situations where there has been no significant deterioration in the real economy above all on the profit rates. Hence when profits start to dip a careful calculation needs to be made. In regard to direct investment, the decision naturally cannot be acted upon with immediate effect, but in financial markets exiting from markets can be done almost instantaneously.

Poverty And Its Effects On America - 894 Words

Poverty is one of largest problem in the whole world, because thousands of people are affected by this major concern. Poverty is an issue that inflicts many dangerous situations, such as, crimes, diseases, lack of literacy, hard labor, etc., and therefore, it is essential to resolute before it gets worse. For example, United States is having risen in unemployment rates, which indicates the early symptoms, that citizens have started submerging into poverty. In most of the poor countries crime ratio is much higher than that of the rich countries. The rich countries are also not exempt from this general rule. The poor areas in a rich country witness more crimes than the posh areas of the same country. Same applies to the most devastating and threatening phenomena of epidemic diseases. Uncleanliness and inhabitation both have nourished in the inflicting more diseases in poor countries of the world, for example, Sudan has highest number of people infected from deadly diseases, such malari a, tuberculosis, and Ebola. Within my article, I learned that the basic cause for poverty is unjust distribution of wealth and other human needs. On the other side, through my article, I also observed that there organization that exists, which intends to help control the poverty, initiated procedure to improve the economic and social background. Poverty is an issue which has to be controlled, and thus, my research paper on poverty in Sudan will provide a glimpse of the leading causes of povertyShow MoreRelatedPoverty And Its Effects On America1579 Words   |  7 Pages â€Æ' When most people think of poverty they think of somewhere overseas, however; poverty is a lot closer to home than one might think. 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Criminology Zones Essay Example For Students

Criminology Zones Essay Vince Zwilling Criminology 1:00 T/R Professor Corbin Crime Zones and Reasoning (Poverty, Race, Social Class) Sociology is a branch of the social sciences that attempts to help us understand society and how people interact. As with many other social sciences, sociology employs theories to help understand why people make certain decisions. Theories that help us explain societal trends are usually segmented in order to accurately examine the specific dynamics of different sections of society. Communities, institutions, gender, race and population are a few popular examples of common segmentations utilized in social theories. Social structure theories, also called social change theories attempt to analyze the driving forces that change society. Sociologists who study social change use the study of both criminology and sociology to draw conclusions about criminal behavior. The overarching belief of criminology theory is that certain social structures support deviant behavior. The three main branches of social structure theories are the social disorganization theory, the social strain theory and the cultural deviance theory. How well have social structure theories explained delinquent behavior in society? In this paper, the major social structural theories will be defined and analyzed. Social Disorganization Theory: Concentric Zone Theory The Centric Zone Theory was proposed by Shaw, and examined arrest rates in Chicago. It was during these years immigrants living in the inner city begin to relocate to the outskirts of the city. The purpose of their study was to conclude if delinquency was caused by particular immigrant groups or by the environment in which immigrants lived. Park and Burgess adopted the original concentric zone theory, and which separated Chicago into 5 distinct zones. Which were: 1. Central Business District 2. Transitional Zone 3. Working Class Zone 4. Residential Zone 5. Commuter Zone The experiment reveled that arrest rates consistently remained high for Zone 2, the transitional zone. They ultimately concluded that delinquency rates are related with ecological environment in which a person or group dwells. Social Ecology Theory This theory is based on the contention that change is natural. Further, this theory suggests that when an area is invaded, competition erupts and competition leads to disorganization, which can spark deviance. This theory disagrees with the social disorganization theory, since the theory presented by Shaw and McKay generalizes data to make conclusions on an individual basis. However, the social ecological theory seeks to explain the high crime rates in urban areas based on individual circumstances. Strain Theories The strain theory postulates that when regulation is inadequate social problems arise. Anomie Theory states individuals who lack the vehicles to help them realize their objectives eventually become disillusioned and may ultimately turn towards a life of crime. There are two main types of strain. Structural strain is the method that improper law enforcement causes a person to view his or her needs. Individual strain is the pressure that people feel while seeking to meet their personal desires. General Strain Theory The main focus is on defining the types of strain. Agnew identifies the measurements of strain, the major types of strain, the links between strain and crime, coping strategies for strain as well as the determinants of delinquent behavior. The General Strain theory deals with the emotional aspect of criminal behavior. Cultural Deviance Theory Where social organizational theory focuses on conditions in the environment and strain theory concentrates on the conflict between goals and means, cultural deviance theory combines the two schools of thought. Millers Focal Concern Theory Identifies the core values of lower-class culture and their association to crime. Core values are defined as: trouble, toughness, excitement, fate, smartness and autonomy. .u76d0716c9029057a06be8ae1e75ea2a1 , .u76d0716c9029057a06be8ae1e75ea2a1 .postImageUrl , .u76d0716c9029057a06be8ae1e75ea2a1 .centered-text-area { min-height: 80px; position: relative; } .u76d0716c9029057a06be8ae1e75ea2a1 , .u76d0716c9029057a06be8ae1e75ea2a1:hover , .u76d0716c9029057a06be8ae1e75ea2a1:visited , .u76d0716c9029057a06be8ae1e75ea2a1:active { border:0!important; } .u76d0716c9029057a06be8ae1e75ea2a1 .clearfix:after { content: ""; display: table; clear: both; } .u76d0716c9029057a06be8ae1e75ea2a1 { display: block; transition: background-color 250ms; webkit-transition: background-color 250ms; width: 100%; opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #95A5A6; } .u76d0716c9029057a06be8ae1e75ea2a1:active , .u76d0716c9029057a06be8ae1e75ea2a1:hover { opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #2C3E50; } .u76d0716c9029057a06be8ae1e75ea2a1 .centered-text-area { width: 100%; position: relative ; } .u76d0716c9029057a06be8ae1e75ea2a1 .ctaText { border-bottom: 0 solid #fff; color: #2980B9; font-size: 16px; font-weight: bold; margin: 0; padding: 0; text-decoration: underline; } .u76d0716c9029057a06be8ae1e75ea2a1 .postTitle { color: #FFFFFF; font-size: 16px; font-weight: 600; margin: 0; padding: 0; width: 100%; } .u76d0716c9029057a06be8ae1e75ea2a1 .ctaButton { background-color: #7F8C8D!important; color: #2980B9; border: none; border-radius: 3px; box-shadow: none; font-size: 14px; font-weight: bold; line-height: 26px; moz-border-radius: 3px; text-align: center; text-decoration: none; text-shadow: none; width: 80px; min-height: 80px; background: url(https://artscolumbia.org/wp-content/plugins/intelly-related-posts/assets/images/simple-arrow.png)no-repeat; position: absolute; right: 0; top: 0; } .u76d0716c9029057a06be8ae1e75ea2a1:hover .ctaButton { background-color: #34495E!important; } .u76d0716c9029057a06be8ae1e75ea2a1 .centered-text { display: table; height: 80px; padding-left : 18px; top: 0; } .u76d0716c9029057a06be8ae1e75ea2a1 .u76d0716c9029057a06be8ae1e75ea2a1-content { display: table-cell; margin: 0; padding: 0; padding-right: 108px; position: relative; vertical-align: middle; width: 100%; } .u76d0716c9029057a06be8ae1e75ea2a1:after { content: ""; display: block; clear: both; } READ: Insects Essay Summary These values may lead to a life of crime since they are at odds with the values of the superior culture. Both the social disorganization and social ecology theories attempt to explain why certain groups have a higher delinquency rate than others. Though these conclusions do strongly resemble trends in delinquency rates among inner city residents today. The primary problem is the existence of multicollinearity (where a linear relationship exists among the explanatory variables) since some of the data such as overcrowding and substandard housing are highly correlated with one another. Such data flaws may adversely affect the accuracy of the theory. The strain theories express the discontent of Americans who fail to achieve the American dream. Crimes committed by white collar, middle class .

Title Of Paper Social Paradigms Essays - Aesthetics,

Title of Paper : Social Paradigms Grade Received on Report : 89% In the following paper I will relate the concept of school to the three sociological paradigms of structural- function, social conflict, and symbolic interactions. The first paradigm that I will relate to school is the structural-function paradigm. The main manifest function of school is for the advancement of knowledge, leading to better jobs and money. School also has many latent effects including: social relationships, team competition in both sports and academic events, and personal academic advancement. All of which will be used in our adult life. Analysis of social conflict should start by pointing out that people coming from a family of a high wealth level will in most cases have a higher education at adulthood. One example of this is our own Chicago Public school system. Well to do families that live in the Chicago Public School System will, with out thought, send there children to a well-funded, safe school as opposed to the gang infested inner-city schools where students are asked to learn instead of expected. One of the many reasons for a demise of the Chicago public school system would be in the great difference of income from the public housing to wealthy north side apartments so easily visible from public housing. Lets now look at symbolic interaction in schools. With all schools even though all students attend the same curriculum under the same roof you will not find two student that are alike. You can find freshmen that on there first day of high school know exactly what they want to do and which university they will be attending, to the senior that has no clue on what he wants to do. Although these points only scratch the surface the sociological paradigms and schools, the most visible problem with education in our country is the great difference from inner-city schools from private schools. While some middle-class and upper-class families have the choice for there children's education most inner-city families don't have the luxury of sending there child to a prestigious private school for $7000 a year.