Bad case of bathulism

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International Finance
April 13 th 2010

Table des matières
I. A brief presentation of Thailand 3
II. What happened ? 5
III. How can a central bank use its currency reserves to support the value of its country's currency in the foreign exchange market? 6
Floating Exchange Rate System 6
Fixed Exchange Rate System 7
IV. Would Thailand have been better of using aflexible exchange rate system instead of the fixed system it did use? 9
V. If you had been a manager of international business in Thailand in February 1997, what could you have done to protect your company against the possibility of a devaluation of Bath? 10
VI. According to an old saying "it's an ill wind that blows no good", can you think or anyone who benefits from Thailand's currency crisis? 11VII. What impact do you think the "Asian contagion" had on other emerging economies, such as those in Latin America or Easter Europe. 12
VIII. Conclusion 13

I. A brief presentation of Thailand

Thailand is an independent country that lies in the heart of Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf ofThailand and Malaysia, and to the west by the Andaman Sea and the southern extremity of Burma. Its maritime boundaries include Vietnam in the Gulf of Thailand to the southeast and Indonesia and India in the Andaman Sea to the southwest.The country is a kingdom, a constitutional monarchy with King Bhumibol Adulyadej, the ninth king of the House of Chakri, who has reigned since 1946, making him theworld's longest-serving current head of state and the longest-reigning monarch in Thai history.[6] The king is officially titled Head of State, the Head of the Armed Forces, an Upholder of the Buddhist religion, and the Defender of all Faiths.
The largest city in Thailand is Bangkok, the capital, which is also the country's center of political, commercial, industrial and cultural activities.Thailand is the world's 50th largest country in terms of total area (slightly smaller than Yemen and slightly larger than Spain), with a surface area of approximately 513,000 km2 (198,000 sq mi), and the 21st most-populous country, with approximately 64 million people. About 75% of the population is ethnically Thai, 14% is of Chinese origin, and 3% is ethnically Malay; the rest belong to minoritygroups including Mons, Khmers and various hill tribes. There are approximately 2.2 million legal and illegal migrants in Thailand.[8] Thailand has also attracted a number of expatriates from developed countries.[9] The country's official language is Thai. It is primarily Buddhist, which is practiced by around 95% of all Thais.
Thailand experienced rapid economic growth between 1985 and 1995 and isa newly industrialized country with tourism, due to well-known tourist destinations such as Pattaya, Bangkok, Phuket and Chiang Mai, and exports contributing significantly to the economy.

II. What happened ?

From 1985 to 1996, Thailand's economy grew at an average of over 9% per year, the highest economic growth rate of any country at the time. Inflation was kept reasonably low within arange of 3.4–5.7%. The baht was pegged at 25 to the US dollar.
On 14 May and 15 May 1997, the Thai baht was hit by massive speculative attacks. On 30 June 1997, Prime Minister Chavalit Yongchaiyudh said that he would not devalue the baht. This was the spark that ignited the Asian financial crisis as the Thai government failed to defend the baht, which was pegged to the U.S. dollar, againstinternational speculators. Thailand's booming economy came to a halt amid massive layoffs in finance, real estate, and construction that resulted in huge numbers of workers returning to their villages in the countryside and 600,000 foreign workers being sent back to their home countries. The baht devalued swiftly and lost more than half of its value. The baht reached its lowest point of 56 units to...
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