Results of Financial Crisis 1. What happened in foreign exchange markets? 2. Wha

Question

Results of Financial Crisis

1. What happened in foreign exchange markets?
2. What happened in real markets and banking markets?
3. What happened in securities markets?

Hong Kong Economic Indice Unit: USD Billion GDP Growth Rate Ind. Production Growth Rate CPI(yoy) Umployeement Rate Export Export(yoy) Import Import(yoy) Surplus/Deficit Y 1989 2.5% 0.8% 10.1% 1.10% 73.23 15.9% 71.76 12.3% 1.47 Y 1990 2.8% -1.0% 10.3% 1.30% 82.02 12.0% 82.41 14.8% -0.39 Y 1991 5.6% 0.8% 11.2% 1.80% 98.58 16.9% 100.24 21.6% -1.66 Y 1992 6.3% 1.6% 9.4% 2.00% 119.51 21.2% 123.43 23.1% -3.92 Y 1993 6.1% -0.8% 8.5% 2.00% 135.25 13.2% 138.66 12.3% -3.41 Y 1994 5.5% -0.1% 8.8% 1.90% 151.4 11.9% 161.78 16.7% -10.38 Y 1995 3.9% 0.9% 9.0% 3.20% 173.75 14.8% 192.77 19.2% -19.02 Y 1996 4.3% -3.7% 6.3% 1.60% 180.74 4.0% 198.55 3.0% -17.81 Y 1997 5.1% -0.8% 5.8% 2.20% 188.08 4.1% 208.63 5.1% -20.55 Y 1998 -5.1% -8.6% 2.9% 4.40% 174.03 -7.5% 184.61 -11.5% -10.58 Y 1999 3.4% -6.4% -4.0% 6.30% 174.08 0.0% 179.66 -2.7% -5.58 Y 2000 10.2% -0.5% -3.7% 5.10% 202.08 16.1% 213.06 18.6% -10.98 Y 2001 0.5% -4.4% -1.6% 4.90% 190.1 -5.9% 201.48 -5.4% -11.38 Y 2002 1.9% -9.7% -3.0% 7.20% 200.32 5.4% 208.02 3.2% -7.7 Y 2003 3.2% -9.2% -2.6% 7.90% 224.04 11.8% 232.58 11.8% -8.54 Y 2004 8.6% 2.9% -0.4% 6.90% 259.42 15.8% 271.46 16.7% -12.04 Y 2005 7.3% 2.5% 1.0% 5.60% 289.51 11.6% 299.97 10.5% -10.46 Source: Financial Authority of Hong Kong

Explanation / Answer

Foreign Exchange markets - the markets became very volatile as a lot of financial institutions tried to withdraw to their home country and had to take a capital flight.

Banking an Real markets - banks could not trust each other and put a noose on lending. Businesses were therefore unable to get credit. Companies on the verge of refinancing could not get more loan and had to downsize or even shut operations.

Securities market - since the earnings prospects of the companies seemed bleak, and their was a liquidity crunch, the stock markets crashed. Companies found it very difficult to raise money from this source as well.

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