This case was written as a test case for the first-year course, the global economy and markets. It is written as a comprehensive case to examine the policy choices facing a small open economy in an increasingly globalized world. It can be used in a course on open economy macroeconomics or international finance. Late in the day on 18 Announced in December 2006, the Bank of Thailand (BOT), the central bank of the country, that effective the next day, it would impose a 30% requiremen unpaid reserve … Read more »

This case was written as a test case for the first-year course, the global economy and markets. It is written as a comprehensive case to examine the policy choices facing a small open economy in an increasingly globalized world. It can be used in a course on open economy macroeconomics or international finance. Late in the day on 18 Announced in December 2006, the Bank of Thailand (BOT), the central bank of the country, that effective the next day, it would be a 30% unpaid reserve ratio (URR) impose on short-term capital inflows. Withhold the capital control measures required financial institutions in reserve accounts for 30% of the capital inflows that USD20, 000 exceeded for a period of one year. The restriction on capital inflows represented a significant escalation Thailand to stop the fight for the official currency appreciation, the baht (THB). On 19 December fell to the Stock Exchange of Thailand (SET) composite index of a record 14.84% to wipe out THB800 billion USD22 billion market capitalization. The sell-affected regional stock markets as well as Jakarta (Indonesia) down 2.85%, Kuala Lumpur (Malaysia) and Singapore by 2% down to 2.23%. In the foreign exchange market, the baht lost 2% of its value against the U.S. dollar to settle at about THB36 to the dollar. The large influx of foreign capital and the resulting appreciation of the Thai baht had imposed in the decision of the transitional government to capital controls culminated. The dramatic reactions in the financial markets, however, had asked Thai politicians to reassess the situation and to consider policy options for the year 2007.
This is a Darden case study.
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Wei Li
Source: Darden School of Business
12 pages.
Release Date: 13 March 2007. Prod #: UV0765-PDF-ENG
Dealing with capital flows: Thailand in 2006 HBR case solution

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