Speculative attack on a currency | Foreign exchange and trade | Macroeconomics | Khan Academy | Forex
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Watch the next lesson: https://www.khanacademy.org/economics-finance-domain/macroeconomics/forex-trade-topic/currency-reserves/v/financial-crisis-in-thailand-caused-by-speculative-attack?utm_source=YT&utm_medium=Desc&utm_campaign=macroeconomics Missed the previous lesson? https://www.khanacademy.org/economics-finance-domain/macroeconomics/forex-trade-topic/currency-reserves/v/using-reserves-to-stablize-currency?utm_source=YT&utm_medium=Desc&utm_campaign=macroeconomics Macroeconomics on Khan Academy: Topics covered in a traditional college level introductory macroeconomics course About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content. For free. For everyone. Forever. #YouCanLearnAnything Subscribe to Khan Academy's Macroeconomics channel: https://www.youtube.com/channel/UCBytY7pnP0GAHB3C8vDeXvg Subscribe to Khan Academy: https://www.youtube.com/subscription_center?add_user=khanacademy
Comments
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how to know when does the central bank run out of reserves? :D
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Very clear explanation! Thank you!
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Venezuela facing such a problem like this
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How do someone in country A borrow money in country B's currency?
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Great video!
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banking terrorism
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It is more likely that the borrower, following devaluation, would only convert the needed funds back into B's, while keeping the profit in A's, the currency with the higher and stable value. One of the other videos includes interest rate hikes which are used as a way to stem the tide of borrowing. Currencies are left to float now, so for today's currency troubles, banks are upping interest rates to protect currencies, ie Russia on 12/15/14
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There is something i don't really understand, when the speculators wants to convert their 1A to 2B, doesn't it create a demand for B and reverse the effect and the money goes back to its old value ?
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Let's add a bit of controversy. A couple of BIG bankers decide they want to mess with a currency, and so, they pick a currency that's already going down. They manage to make a "quick buck" and depress this country's currency by 20% over a 2-month period. They happily cash-in, pay off their debt. Wow such amaze!
Now looking from people's perspective. Everyday in the news banks are having liquidity problems and the price of everything is going up. The media and economists panic. They foresee an economical crisis, this frightens thousands and thousands. People, thinking that their money isn't valuable anymore and that the situation isn't getting better any time soon, begin to sell what they have in country's currency to avoid getting screwed and even moVe to other countries, but what they don't know is that by doing this they are helping these few bankers accomplish their attack.
Great. You just destroyed lives making a 'buck' :) -
Thank you, i love this channel.
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finally it makes sense to me
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Because speculators will buy currency A with the borrowed B's, creating increase of the currency B on the market (which will lead to a depreciation). When the currency of B eventually drops in value, they will buy B's back, but for a lower amount of A's, making profit
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depreciate not devalue!
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I have a few questions: at about 3:18 he said that speculators who are borrowing B's would increase the supply of B's, how does this work? Why does more and more people borrowing B's create an increased supply of B's? What happened in Thailand in 1997? Did they simply ran out of US reserves and thus weren't able to defend their currency, thus causing the Bhat to devalue?
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If you recall, the premise is that B is trying to maintain a fixed exchange rate. In the two country example, in order for B to appreciate, A's must be used to purchase B's. If this happens, B's central bank will print more B's to soak up the increase in demand, and thus maintain B's original value.
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Since the interest rates in that country would be very high, to prevent speculative attacks and encourage savings, then the borrowers would risk losing a lot of money if their speculative attacks failed.
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You're very right. That's what Hong Kong in 1998 and Japan did, raising the interest rates when the speculative attacks launched against them. Of course, raising the interest rate mean less incentives for companies to borrow more from banks, slow down the economic output rate to a certain level, and the bond market may go down. Despite all that sometimes such measure needs to be implemented.
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different countries have different laws, but I believe most advanced countries do have laws that either prevent speculators to buy the local currency more than certain level, or simply ban the speculation.
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You are very biased in you videos... 1. you mention that when b is devalued everything gets more expensive. you dont cover that exporting B's product becomes more competitive??? 2. if you break up the fx rate into possibilities there are not 2 options B devaluing or staying the same. how about B increasing in value if the speculation fails then all the A cur. has to be changed back to B cur. causing B devaluation. please stick to the entire macro book script. 3. got annoyed to finish the video
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Is this legal? Are there laws against this?