1. Do you think a country the size of Iceland or New Zealand is more or less...
Question:
1. Do you think a country the size of Iceland or New Zealand is more or less sensitive to the potential impacts of global capital movements? "More than almost anything icelanders like a soak in hot water. Reykjavik has more thermal spas per head than any other city in the world. But lately, the North Atlantic nation has been feeling more heat than it bar- gained for. On February 1 Fitch, a rating agency, cut its outlook on Icelandic sovereign debt to negative from stable, drawing attention to a current-account deficit that ballooned to 15% of GDP in 2005 and fast-raising foreign debt. With only, 300.000 people and an econ- omy one-third the size Luxembourg's, Iceland's trou- bles may sound like the fabled headline. "Small earthquake: not many dead." But dire warnings of con- tagion have flourished out of all proportion to the country's size. "Storm in a Hot Tub," The Economist, March 30, 2006.
The last one or two years had been something of a shock to the icelandic people. Long used to being ignored in the world, iceland's economic situation and its interest rates-some of the highest in the world recently-had suddenly garnered much international attention. Now, in the spring of 2006, Iceland's central bank and govern- mental monetary authorities were wondering whether they were seeing the dark underside of globalization and economic growth. Is this what it felt like to be a small country in a global market?
Step by Step Answer:
Fundamentals Of Multinational Finance
ISBN: 9780321541642
3rd Edition
Authors: Michael H. Moffett, Arthur I. Stonehill, David K. Eiteman