Capital flows and the balance sheet effect. The direct impact of ultra-easy money policy in advanced economies during the GFC was to spark massive capital inflows to emerging markets (EM) including Indonesia (see Chart 3). On the one hand, this led to an increase of EM liquidity, on the other it posed greater risks to EM financial stability. Chart 3. Gross and Net Capital Flows in Select Emerging Asian Economies 150 pre- AFC AFC post-AFC pre-GFC GFC post-GFC 100 50 -50 -100 -150 Q4 1996 QI 1999 Q22001 Q3 2003 Q42005 QI 2008 Q2 2010 Q1 2013 Gross inflow Gross outflow Net flow Notes: Based on 4-quarter moving sums for Indonesia, the Republic of Korea, the Philippines, and Thailand. Source: Taken from Azis, IJ & D. Yarcia (2015) “How Capital Flows in the Midst of Excess Savings Affect Macrofinancial Vulnerability," Asian Development Review, vol. 32, no. 2, pp. 115-152 Questions: a. Explain why massive capital inflows can be a double-edged sword for emerging markets including Indonesia b. What would be the mechanism of capital outflows affecting the balance sheets of firms that could eventually worsen the macroeconomic conditions S billion

Capital flows and the balance sheet effect. The direct impact of ultra-easy money policy in advanced economies during the GFC was to spark massive capital inflows to emerging markets (EM) including Indonesia (see Chart 3). On the one hand, this led to an increase of EM liquidity, on the other it posed greater risks to EM financial stability. Chart 3. Gross and Net Capital Flows in Select Emerging Asian Economies 150 pre- AFC AFC post-AFC pre-GFC GFC post-GFC 100 50 -50 -100 -150 Q4 1996 QI 1999 Q22001 Q3 2003 Q42005 QI 2008 Q2 2010 Q1 2013 Gross inflow Gross outflow Net flow Notes: Based on 4-quarter moving sums for Indonesia, the Republic of Korea, the Philippines, and Thailand. Source: Taken from Azis, IJ & D. Yarcia (2015) “How Capital Flows in the Midst of Excess Savings Affect Macrofinancial Vulnerability," Asian Development Review, vol. 32, no. 2, pp. 115-152 Questions: a. Explain why massive capital inflows can be a double-edged sword for emerging markets including Indonesia b. What would be the mechanism of capital outflows affecting the balance sheets of firms that could eventually worsen the macroeconomic conditions S billion

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Problem 3. Spillovers and International Transmission of Shocks Panama (Home) is a small open economy that pegs its exchange rate to the US (Foreign) dollar. Assume that shocks/policies of Panama have no impact on the US economy as it is a small country. We assıme that investment in Panama only depends on the real interest rate so that when rates rise investment falls and vice versa. Formally, we can write I = I(R), I'(R) < 0. We will say that a shock is transmitted positively from the US to Panama, whenever outputs of the US and Panama move in the same direction in response to that particular shock. A shock is transmitted negatively if the outputs of the US and Panama move in opposite direction. Furthermore, assume that all shocks analyzed below are temporary. (a) Using the AA-DD framework, show the effect a US monetary expansion (R* 4) on output, inter- est rates, money supply, and the exchange rate in Panama. Do US monetary shocks transmit positively or negatively to Panama? (b) Do…
11 Use the IS-LM-UIP model for an open economy with flexible exchange rates as a useful tool in discussion of domestic macroeconomic effects of high electricity prices, including petrol and diesel prices, and how this affects the purchasing power and economy of a country when electricity prices are 7-10 times normal
The Balance of Payment (BOP): BOP is a significant indicator of pressure on a country’s foreign exchange rate, and thus of the potential for a firm trading with or investing in that country to experience foreign exchange gains or losses. Based on the scenario, Identify and analyze the main summary statements of the balance of payments accounts and what do they measure? Note: Students are expected to define and explain BOP , and three sections of BOP statements. Each section carries
Asap
Case. The experience of Greece illustrates some of the challenges of the eurozone. As a result of the global financial crisis that began in 2007–2008, the eurozone entered its first official recession. The severity of this downturn came close to breaking up the eurozone as financially weak members such as Greece, Portugal, Cyprus, and Spain teetered on the verge of bankruptcy.In 2008, Greece was in deep recession, its economy was uncompetitive with northern eurozone members like Germany, and its debt was more than three times as large as previously estimated. With debt piling up, investors feared that Greece could not pay its international obligations. To shore up Greece’s financial position, other eurozone countries, in conjunction with the International Monetary Fund (IMF), agreed on a packagethat gave Greece 110 billion euros in loans. When this bailout was agreed to, it was feared that Greece's exit from the eurozone would cause so much panic in the markets that other vulnerable…
1. Summer1 Digital (Summer1) is a multinational corporation that produces and distributes telecommunications technology. Although its corporate headquarters are located in Kuala Lumpur, Malaysia, Summer1 usually buys its materials in several different countries using several different foreign currencies. The matter is further complicated because Summer1 often sells its products in other foreign countries. Summer1 is concerned with economic conditions that could adversely affect ringgit exchange rates. Explain Malaysias economic conditions in 2021. Evaluate the risks that need to be considered by Summer1 if it decides to continue buying materials from other countries including China and Indonesia as well as selling its products in countries such as Hong Kong and Japan. Discuss ways to manage and minimise the impacts of the risks associated with Techno1’s materials purchase and products sales in the foreign countries.
1b- Please answer this question in detail. Many Thanks
The observation that short-term capital has become increasingly mobile internationally probably implies the BP curve has O A. become steeper O B. become flatter C. become unimportant D. become downward sloping
6
EAFE Weight Return on Equity index Currency appreciationE1/E0-1 Managers Weight Managers Return Europe 0.3 20% -20% 0.25 18% Australia 0.1 15% 10% 0.20 20% Far east 0.6 25% 0 0.55 30% All exchange rates are expressed as units of foreign currency that can be purchased with one U.S. dollar. Answer the following about decomposing the manager's performance.What is the difference in return of the manager's portfolio due to country selection?
the effects of domestic and international financial liberalization on the economy in terms of financial fragility and risk factors. discuss the mechanisms which generate the cycles of boom and bust after international financial liberalization.
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.