Financial Crisis in Asia Term Paper Example | Topics and Well Written Essays - 2250 words

Financial Crisis in Asia - Term Paper Example   South Korea had a very strong economy but a high level of debt which existed in the economy was given very little attention. The borrowed funds by the South Korean economy were invested very wisely in assets so it made perfect sense and reassured the economic stability, but when the funds were invested in assets it also gave rise to various risks pertaining to the same. The short debts touched alarmingly high levels in the South Korean economy, â€Å"In 1992 short term debt constituted about one-third of its total borrowing, but by 1996 short term debt had risen to two-thirds of its total of $158 billion of foreign debt. South Korean firms were operating at a high degree of leverage. The typical leverage ratio for South Korean firms was in the neighborhood of six to one and some South Korean firms had leverage ratios of 600 to one.† The crisis in South Korea was triggered by the collapse of Thai Baht (currency of Thailand) in 1997. The currency had devalued due to stemming of reserve outflows by the central bank in order to ensure growth for money supply in the crisis period. The strategies adopted by the South Korean economies always left them prone to many dangers, a classic example of the same follows: The Korean First Bank got itself in a vulnerable position because of the hefty amount of loan issued to Hanbo group, with in no time the Hanbo group went bankrupt and its inability to pay the loan back to the Korean first bank resulted in the bankruptcy of Korean Bank.