Assume that before the currency crises in Mexico in 1994 and in Thailand in 1997 that foreign investors were fueling booms in those two countries by investing their monies in the local economies. Furthermore, that before the crises hit there were warning signs that the boom was about to end and the Mexican peso and Thai baht would be devalued. Answer question 3 below using this information and your knowledge of foreign exchange markets.
What would firms in Mexico and Thailand try to do if they had large debts denominated in foreign currencies? Explain in detail. What would foreign investors try to do to avoid losses from falls in the value of the local currencies? Explain in detail. What would speculators try to do to profit from the coming crisis? Explain in detail. What would domestic asset holders in Mexico and Thailand try to do to hedge their positions and reduce their losses from the coming crisis? Explain in detail.