Introduction of Financial Crisis

            Exchange rates refer to the rate at which one currency can buy the other currency. Depreciation is that when the exchange rates decrease. Currency crisis takes place when the value of a country’s currency declines. This leads to exchange rate problem in a sense that on unit of currency after this crisis will not buy as much other currency as it was before. To get a better understanding let’s say, that 100 RS meant 1 Us dollar but the suddenly the exchange rate depreciates this means that now 200RS will be needed to buy 1 US dollar.

        These changes in exchange rate have numerous disadvantages for the country. The main one being that investors are never willing to invest in a country where there is economic instability.  In some currency crisis cases there is a huge capital flight meaning that all the capital that was invested in that economy is reallocated to some other country. This actually further worsens the exchange rate. Some economists have figured out some factors that could be used as a prediction that the country is towards a currency crisis. Some of those factors are that if the country has borrowed heavily, if its currency value is increasing speedily and if their government is unstable that is leading to unsettled investors. (Pettinger, 2017)

        We can analyze that how relevant these factors are in drowning a country into currency crisis by having a look at some real life examples of currency crisis in the world. Before going there it is important to understand the role of IMF that stands for international monetary funds. IMF is basically an organization of 189 countries. It was created back in 1945 and is accountable too to the 189 countries that govern it. The main objective of IMF is to enhance global monetary cooperation, increase the levels of employment, reduce poverty and enable sustained economic growth all around the world. Whenever there is a currency crisis it is quite usual to see IMF intervening in order to help the situation get better fast. However, there are some cases where the involvement of IMF has actually said to be controversial.

References of  Financial Crisis

Pettinger, T. (2017, November 12). Asian Financial Crisis 1997. Retrieved from https://www.economicshelp.org/blog/glossary/financial-crisis-asia-1997/