Financial Criiss

please subscribe I donnt 1997 Asian Financial Crisis

In 1997 the economic environment in Asia ,especially, in South East Asia started to worsen and eventually crisis happened . It had severe consequences on people living in the countries as Thailand, Indonesia , South Korea , Phillippines ,Hong Kong , Malaysia, Mongolia , Singapore, China . In firstly mentioned 4 countries it had fundamental influence on the economic structure . There were several reasons which caused and triggered the financial crisis .

Everything started from Thailand market... In early 1990s there was a fixed and stable currency of Thailand against the USA dollar .Everything changed due to some apparent and certain reasons :

Thailand economy was growing very fast at average 9 percent per year . Bank sector was in expansion period . Lenders were willing and able to lend large amounts of money because there was an arbitrage in the Thai market as lenders were able to borrow at lower interest rates from USA markets (say, at 5 percent ) and lend at 11 percent in Asia , obtaining 6 % spread on the loans . This opportunity caused large amount of dollar inflow into the market making the economy prosper ,however , it created highly-leveraged economy and pushed the asset prices upward as the demand increased sharply . On the other hand, banks were so confident on lending as they thought the government would back them up in any condition and they started to provide loans irresponsibly without taking default risk into consideration . Finally,as some subprime borrowers failed in paying back, the price bubble burst , so the asset prices plummeted. So financial instutions lost because of the defaults. Eventually , the investors panicked and withdrew their money from the country, so the demand for Thai Baht fell.Since they needed to convert tremendous amount of thai bahts to dollars , exchange rates were affected notably , therefore local currency depreciated quickly .

As seen the government did not have prudent regulations on the borrowing and performance of banks , and financial instutions did not focus on risk managent as they were concentrated on the growing current profits. Intervention of the Central Bank by increasing interest rates(the point was to attract foreign investors with higher returns) to the case made it even worse . As people had comparatively lower salaries they stayed away from loans which were very expensive at the moment .

Almost the same trend happened in the other countries as well .

The economic slowdown was triggered