Impact Of Foreign Flows On Currency Crisis

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02 Nov 2017

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The project ‘Impact of Foreign Flows on Currency Crisis’ essentially deals with studying the impact of three most important variables namely, Foreign Direct Investment, Foreign Portfolio Investment and Short Term Lending on currency crisis. What role they played and up to what extent did them contributes towards currency crisis is the genesis of the study? The detail study on full literature study on currency crisis shows that the effect on currency crisis because if Foreign Direct Investment (FDI) cannot be examined. Currency crisis in the country has a negative image of an economy in the world. Country can reduce or restrict FDI activity in the country or government can allow certain percentage FDI in the country. There are some factors that can affect the country’s currency crisis.

FDI investment in the country,

Country’s foreign portfolio investment

Short term lending

Specific questions to be arising while doing study on currency crisis:

What would be the foreign portfolio Investment and short term lending in the specific countries?

How much foreign investment in the specified countries?

How much short term debt dependence within the specified period for specified countries?

What would be the capital control over the specified time period?

What would be the impact of capital controls?

The objective of this study is to understand the role of International monitory Fund, how currency crisis occur, and future of currency crisis and what would be the impact of inflow and outflow of currency in the economy.

Personal Interest

I was really interested in this topic when I was studying International Business Finance, Applied Finance, and Global foreign trade, Mergers and Acquisitions and Multinational Business finance. Now World is becoming smaller and smaller, as economy became global. In all over the world, stock market weaken day by day, large corporations have collapsed or merge or acquire with others and strongest government even become weaken and come up with liberate packages to bail out their financial systems. By thinking this entire question, I would like to know what would be the impact on global economy having overseas investment, foreign portfolio investment and short term lending on currency crisis.

The variables leading to currency crisis were again influenced by some other variables specifically, Gross Domestic Product, Capital Controls and Corruption. Since the variables triggering currency crisis were themselves influenced by other variables, the former would be called Dependent Variables and the latter as Independent Variables.

In this project, I shall be analyzing and evaluating the impact of all the independent variables taken together on each individual dependent variable. My analytical bent of mind essentially pushed me towards this research based secondary study. Now question that arises is: What is the crux of the term ‘Currency Crisis’. There is no universally accepted definition of a currency crisis, but most would agree that they all involve one key element: investors fleeing a currency en masse out of fear that it might be devalued, in turn fueling the very devaluation they anticipated. A currency crisis is defined as a speculative attack on country A's currency, brought about by agents attempting to alter their portfolio by buying another currency with the currency of country A. This might occur because investors fear that the government will finance its high prospective deficit through seignior age (printing money) or attempt to reduce its non-indexed debt (debt indexed to neither another currency nor inflation) through devaluation. Devaluation occurs when there is market pressure to increase the exchange rate (as measured by domestic currency over foreign currency) because the country either cannot or will not bear the cost of supporting its currency. In order to maintain a lower exchange rate peg, the central bank must buy up its currency with foreign reserves. If the central bank's foreign reserves are depleted, the government must allow the exchange rate to float up-a devaluation of the currency. This causes domestic goods and services to become cheaper relative to foreign goods and services. The devaluation associated with a successful speculative attack can cause a decrease in output, possible inflation, and a disruption in both domestic and foreign financial markets.

http://www.globalissues.org/article/768/global-financial-crisis#Acrisisofpovertyformuchofhumanity

Personal Benefits or Commercial Viability

The research, finding and conclusions of currency crisis project will help to know the insight of the effect of the foreign flows on currency crisis.

To know Foreign Portfolio Investment and Short Term Lending in the specified countries

Foreign Direct Investment in the specified countries

To know the short-term debt dependence within the specified time period

To know capital controls over the specified time period and study the impact of capital controls.

Methods of Gathering Information

Type of research

Descriptive and Analytical Research studies will be carried out for accomplishment of above stated objectives.

Sample size

The population to be studied covers the following countries:

A-5 Countries namely,

Indonesia

Malaysia

Thailand

Korea

Philippines

India

China

Data collection sources

The data required for carrying out the study will be collected from the secondary data.

Transparency International Index

International Country Risk Guide Index

Global Competitiveness Report index

Data analysis

The processing and analyzing of data will be carried out through Regression Analysis.

Primary Research

Secondary Research.

Primary Research would be conducted through Interactions with government agency by online E-mail and chat. Because of less number of statistical data from the primary research, I will concentrate more on secondary research.

Secondary Research will be done through Magazines, financial publications, journals and other available resources. There are lots of factors that may obstruct the project. There will be a limited time in that lots of interaction will be done for the primary and secondary data. That will drive more concentrate on secondary research.

Knowledge and Skills Need

First of all, it is necessary to have communication and writing skills to interact with the government agency to have some primary data via emails and skills require to gather secondary data from the literature, journal, magazines and websites. Writing skills also helps to prepare efficient report. It would require basic understanding of economics which would help to analyze the data related to countries economy cycle and its businesses. It also requires having knowledge of basic finance. It also requires Presentation skills to prepare and present an effective oral report of the project.

Previous Research on this Topic

I have conducted research on Initial Public Offer (IPO) grading that is primary issue stock, while I was studying in India. It is totally different from the currency crisis market.



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