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# Math mechanics of Thai banking crisis

Going through the mechanics of how a Thai financial institution can lose their shirt when their currency devalues. Created by Sal Khan.

## Want to join the conversation?

• Can someone please tell me what interest rates are? Thanks!
• interest rates are the percentage of a sum of money charged for it's use.
• What is a bank crisis
• A bank crisis occurs when the bank "runs out of money" for example the bank can loan out money. If it loans out more money than the borrowers are able to pay back, the bank no longer has funds for the accounts held by customers of the bank. Because each account is federally insured up to a certain amount this causes a federal problem. The government now has to pay for the money the bank lost. Get it now?
• What's a bank run?
• A bank run occurs when a large number of people realize that the bank will run out of money, and they all run to the bank (electronically, now) to make sure they can retrieve their money before it physically runs out.

This is hedged against with bank reserve requirements, which allow the banks to invest only a certain amount of their deposited funds, and keep the rest to be physically available for withdrawal by customers.
• Is it usually that private investors lend directly to banks? Or would foreign investors compete against banks in the investing countries (perhaps by offering lower interest rates)?
• Private investors lend to banks when they buy CD's or deposit money in checking or savings accounts.
• can some one tell me what percent means?
• Percent means out of 100,for instance 90% is out of 100%.
(1 vote)
• What is an exchange rate?
• An exchange rate is the price of a currency against another currency. Basically, it's how much of currency X can be bought with one unit of your currency.
• so in this situation does the government have any solution to solve the problem and what is the most common solution for this?
• basically the country has to make the value of her currency go up, which can be done by increasing exports, lowering interest rates or making the demand for her currency increase in any other way but when such a crisis happen there isn't much to do in the short term, therefore it is called a crisis.
i can't think of a common solution for this because it happened many times over the years in other countries like the US or Zimbabwe (where the largest banknotes ever were printed in order to deal with it) and more. every country dealt with this sort of crisis in its own way.
• But why wouldn't investors reinvest when the baht devaluates? After all, this would mean that you could get more baht per dollar, which would mean you have more baht in your possession, which would make you richer in Thailand because prices would stay the same (right?)
• They might. That's the point of the devaluation.
It doesn't change the fact that the people holding baht at the beginning were hurt.