inflows became strong, after 1992, that their currencies appreciated in real terms. the currency overvaluation, declining exports, overheated property markets and the fragile banking system had fuelled intense foreign currency speculation, as the market participants felt that the natural course of the currency was to depreciate. given the huge short - term borrowings, the fund managers started exiting the economy with the first sign of trouble, leading to a de facto devaluation of the thai baht. an important point to be noted here is that the currency crises in these countries was managed quite efficiently with the help of reserves which most of these countries had to defend their currencies. thailand, as also other east asian economies, despite a large current account deficit, are high - saving economies with good underlying growth rate and strong competitiveness. what are the lessons for india? 12. the recent experience of the emerging economies shows that any currency could come under speculative attack if its exchange rate is out of alignment with fundamentals for a prolonged period of time. second, once the speculative attack is launched on any currency, the neighbouring currencies are also vulnerable, no matter how sound their policies may be. third, the overvaluation of a currency acts as a catalyst when there is a run on the currency as all the market players base their action on the information that the currency is due for correction. presently, compared to march 1993, the appreciation of the indian rupee in real effective terms is around 14 per cent. the indian economy does have certain favourable factors in terms of a moderate cad / gdp ratio, high foreign exchange reserves and a ratio of short - term debt to reserves much lower than that of the east asian countries. our inflation rate is also edging downwards. we have a fairly solid banking system despite the npas ; the number of nbfcs are not that large ; and the financial sector is subject to reasonably effective regulation by the rbi. our financial sector is, therefore, less vulnerable than many of the east asian economies, notwithstanding the fact that there are corporates operating with unhedged positions. it is unlikely that any turmoil in south east asian economies would have a direct impact upon the indian rupee as india ’ s trade with the five countries of the south east asian region ( thailand, indonesia, malaysia, philippines and singapore ) constituted only 7. 8 per cent in 1996 - 97. also, the currencies of this region are more internationally traded,

gses, both companies were large and complex and deeply embedded in our financial system. in both cases, as the firms approached default, the treasury and the federal reserve sought private - sector solutions, but none was forthcoming. attempts to organize a consortium of private firms to purchase or recapitalize lehman were unsuccessful. with respect to publicsector solutions, we determined that either facilitating a sale of lehman or maintaining the company as a free - standing entity would have required a very sizable injection of public funds – much larger than in the case of bear stearns – and would have involved the assumption by taxpayers of billions of dollars of expected losses. even if assuming these costs could be justified on public policy grounds, neither the treasury nor the federal reserve had the authority to commit public money in that way ; in particular, the federal reserve's loans must be sufficiently secured to provide reasonable assurance that the loan will be fully repaid. such collateral was not available in this case. recognizing that lehman's potential failure posed risks to market functioning, the federal reserve sought to cushion the effects by implementing a number of measures, including substantially broadening the collateral accepted by the fed's primary dealer credit facility ( pdcf ) and term securities lending facility ( tslf ) to ensure that the remaining primary dealers would have uninterrupted access to funding. in the case of aig, the federal reserve and the treasury judged that a disorderly failure of aig would have severely threatened global financial stability and the performance of the u. s. economy. that judgment reflected our assessment of prevailing market conditions, aig's central role in a number of markets other firms use to manage risks, and the size and composition of aig's balance sheet. to avoid the default of aig, the federal reserve was able to provide emergency credit that was judged to be adequately secured by the assets of the company. to protect u. s. taxpayers and to mitigate the possibility that lending to aig would encourage inappropriate risk - taking by financial firms in the future, the federal reserve further ensured that the terms of the credit extended to aig imposed significant costs and constraints on the firm's owners, managers, and creditors. aig's difficulties and lehman's failure, along with growing concerns about the u. s. housing sector and economy, contributed to extraordinarily turbulent conditions in global financial markets in recent weeks. equity prices have fallen sharply, the cost of short - term credit