International Economic

Chapter 1Intervention in the foreign exchange market 1.1Introduction By studying the financial crises that took place since 1997 in Asia, Russia and South America, it can be found that in many cases, short-term debt crisis was aggravated through the unloading of stocks, bonds and currencies. Countries with the pegged exchange rate system were the first to be hard hit. In fact that the collapse of the Thai Baht in July 1997 was followed by an unprecedented financial …

…adequacy or appropriate level of a country's reserve is a question in dispute, because basic motives for holding do result in alternative frameworks for determining the optimal level. It is generally agreed that the more reserves, the better economy. However, refer the "Mrs. Machlip" effect following the argument put forward by Fritz Machlup (1966), is that the adjustment to a situation of deficient reserves is more rapid than it is to a situation of excess reserves.