3. We wish to understand the financial crisis in Asia in 1997. In the article ``Ten Years On'' (available on Canvas): ``Most Asian economies now enjoy sizeable current account surpluses and have built up extensive foreign-exchange reserves with which, in theory, they could protect their currencies from speculative attack in future. (Indeed, it is an enduring complaint of economists these days that Asian countries have gone too far in the opposite direction, having built up far greater levels of reserves than they need.)'' Economist Paul Krugman:"[N]obody who has read a business magazine in the last few years can be unaware that these days there really are investors who not only move money in anticipation of a currency crisis, but actually do their best to trigger that crisis for fun and profit. These new actors on the scene do not yet have a standard name; my proposed

term is 'Soroi'." (See George Soros) To simplify the analysis, we focus on the currency crisis in Thailand. (a) Use the FRED web site to plot the Thailand/US foreign exchange rate in 1990-2017. (b) Plot Thailand's foreign exchange reserve from 1990 to 2009. (Hint: Use https://data.worldbank.org/indicator/FI.RES.TOTL.CD?locations=TH) (c) Imagine this is 1997. Suppose Thailand unilaterally defends an exchange rate of 1 dollar to 25 baht with a foreign reserve of 40 billion US dollar. Suppose an investor wants to implement a speculative attack on baht. What is the minimum amount of baht that this investor should sell so that the Thai government will have to use up all her foreign reserve to defend the exchange rate? (d) Suppose the investor borrows 1.5 trillion baht for the attack and the transaction cost for this borrowing is 400 million dollar. The investor sells all 1.5 trillion baht in the foreign exchange market to buy US dollars (at the rate of 1 dollar to 25 baht). Suppose with probability 0.1 the attack is successful and the Thai government runs out of foreign reserve. If the attack is successful, then the Thai government devalues baht and the new exchange rate would be 1 US dollar to 40 baht. Given this information, what is the investor's expected profit from the speculative attack (in terms of US dollar)