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1) Based on the material Mini-Case: Asian Currencies Sink in 1997, answer following questions: (a) What were the economic reasons for the Asian crisis? (b) What were the regulatory and legal reasons for the Asian crisis?

2) Based on the material Mini-Case: A Greek Tragedy, answer fol- lowing questions: (a) What are the economic and political reasons for the Greek crisis? Whats their influence? (b) What are the social and cultural issues caused by the Greek crisis?

uring the second half of 1997, and beginning in Thailand, currencies and stock markets plunged across East Asia, while hundreds of banks, builders, and manufacturers went bankrupt. The Thai baht, Indonesian rupiah, Malaysian ringgit, Philippine peso, and South Korean won depreciated by 40% to 80% apiece. All this happened despite the fact that Asias fundamentals looked good: low inflation; balanced budgets; well-run central banks; high domestic savings; strong export industries; a large and growing middle class; a vibrant entrepreneurial class; and industrious, well-trained, and often well- educated workforces paid relatively low wages. But investors were looking past these positives to signs of impending trouble. What they saw was that many East Asian economies were locked on a course that was unsustainable, characterized by large trade deficits, huge short-term foreign debts, overvalued currencies, and financial systems that were rotten at their core. Each of these ingredients played a role in the crisis and its spread from one country to another.

Loss of Export Competitiveness. To begin, most East Asian countries depend on exports as their engines of growth and development. Along with Japan, the United States is the most important market for these exports. Partly because of this, many of these countries had tied their currencies to the dollar. This tie served them well until 1995, promoting low inflation and currency stability. It also boosted exports at the expense of Japan as the dollar fell against the yen, forcing Japanese companies to shift production to East Asia to cope with the strong yen. Currency stability also led East Asian banks and companies to finance themselves with dollars, yen, and Deutsche markssome $275 billion worth, much of it short termbecause dollar and other foreign currency loans carried lower interest rates than did their domestic currencies. The party ended in 1995, when the dollar began recovering against the yen and other currencies. By mid-1997, the dollar had risen by more than 50% against the yen and by 20% against the German mark. Dollar appreciation alone would have made East Asias exports less price competitive. But their competitiveness problem was greatly exacerbated by the fact that during this period, the Chinese yuan depreciated by about 25% against the dollar.3 China exported similar products, so the yuan devaluation raised Chinas export competitiveness at East Asias expense. The loss of export competitiveness slowed down Asian growth and caused utilization ratesand profitson huge investments in production capacity to plunge. It also gave the Asian central banks a mutual incentive to devalue their currencies. According to one theory, recognizing these altered incentives, speculators attacked the East Asian currencies almost simultaneously and forced a round of devaluations

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