Lecture 8: Financial Markets

Question 1

What are the three financial crises?

Answer 1

• East Asian (currency) crises, 1997
• GFC (banking), 2009
• Euro (govt. debt), 2011

Question 2

Types of international financial transactions (Captial flows)

Answer 2

1. FDI (sticky)
2. Commercial/government/individual loans and deposits (long term & short term)
3. Portfolio Investment
4. Payment for imports and exports
5. Currency trading (speculation)

Question 3

For financial stability, governments generally would like to have: (What are the three incompatible economic policies?)

Answer 3

• Fixed exchange rates
• Monetary policy
• No capital controls

These three are incompatible, only can achieve 2 in the LR