Question

How do you think the loss of confidence in the Thai baht, evidenced by the withdrawal of funds from Thailand, will affect the baht’s value? Would Blades be affected by the change in value, given the primary Thai customer’s commitment?5.Assume that Thailand’s central bank wishes to prevent a withdrawal of funds from its country in order to prevent further changes in the currency’s value. How could it accomplish this objective using interest rates?

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How do you think the loss of confidence in the Thai baht, evidenced by the withdrawal of funds from Thailand, will affect the baht’s value? Would Aussie Blades be affected by the change in value, given the primary Thai customer’s commitment?

Answer 1

When investors are withdrawing funds from a country then there is often a significant pressure on the exchange rate of the currency and it depreciates in value. Normally it is that because investors are losing confidence from the investment of the country that may be because of the rise in inflation or deficit or may be because of the instability in the government policies the currency will lose its value and it will depreciate. Any one who is operating in a country where the currency is losing its value they can be affected negatively as well as positively. If you are an exporter of goods or services then your goods have become cheaper and it might happen that the demand of your goods increases. If you are an importer then the cost of goods and services will increase for you. If the central bank wants to control this situation by using the interest rates then the first thing it would do is to increase the interest rate at which it lends to other bank, this will eliminate the excess demand from the market and then the pressure would be reduced. To bring more stability of the currency it will have to might enter into the forex market to buy or sell so that the demand and supply of currency is managed.