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Authors: Brian Kettell
Published by: Centre for Islamic Banking and Finance
Published in: 1999

Abstract

This is the first of a two-case series (299-055-1 and 299-056-1). Economies that had been hailed as paragons of sound macroeconomic management, largely based in Asia, recently suddenly found themselves with large scale currency devaluation''s, a collapse of both asset prices and of economic activity. The 1994 currency collapse in Mexico was also just as surprising to observers. The case series is designed to illustrate to what extent currency crises can be predicted. Part one examines one currency forecasting system, known as the leading indicators technique and part two examines a second approach known as the ''probit'' technique. This case is suitable for undergraduate and postgraduate courses with an international finance, international banking or international business component. The themes covered also provide an analytical framework in which multi-national company decision making has to be analysed whether from the point of view of international finance, international marketing or international corporate strategy. It is particularly suitable for business situations where foreign exchange hedging and arbitrage decisions are being discussed.

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Abstract

This is the first of a two-case series (299-055-1 and 299-056-1). Economies that had been hailed as paragons of sound macroeconomic management, largely based in Asia, recently suddenly found themselves with large scale currency devaluation''s, a collapse of both asset prices and of economic activity. The 1994 currency collapse in Mexico was also just as surprising to observers. The case series is designed to illustrate to what extent currency crises can be predicted. Part one examines one currency forecasting system, known as the leading indicators technique and part two examines a second approach known as the ''probit'' technique. This case is suitable for undergraduate and postgraduate courses with an international finance, international banking or international business component. The themes covered also provide an analytical framework in which multi-national company decision making has to be analysed whether from the point of view of international finance, international marketing or international corporate strategy. It is particularly suitable for business situations where foreign exchange hedging and arbitrage decisions are being discussed.

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