Effect Of Currency Mismatch On Monetary Crisis

1990s, emerging market countries currency crisis erupted several times, and the world economy have resulted in a greater financial impact and shock. Many scholars have found that there is a serious "currency mismatch" in many corporate balance sheets of these countries. Currency mismatch refers to assets and liabilities of an economy or income and expenses are denominated in different currencies in the international market environment. Therefore, changes in exchange rates will impact on the assets and liabilities or income and expenses economies. With further research, the scholars gradually shifted from the country in crisis to all emerging market economies. They realized the monetary crisis and the outbreak of the financial crisis and its common currency mismatch problem closely linked in developing countries. With the continuous development of financial globalization, the integration of the global commodity markets and financial and capital markets will be further deepened. Contact financial environment within countries and international financial environment will also be more closely. Financial crisis will be easier spread internationally and more uncontrolled. China, as an important participant of the world economy, which all inevitably affected by the international financial markets and other countries. Especially with the advance of China’s capital account liberalization process, the impact will be more significant and the abyss, based on this perspective, studies on the relationship between currency mismatch and the crisis have significant practical significance, especially for the situation that financial and capital markets will be further developed.The corporate balance sheet currency mismatches will induce a crisis. When there is a currency mismatch, if the company’s balance sheet liabilities items marked mainly for foreign currency denominated, while devaluation or revaluation of the currency of foreign currency will be invisible to make corporate balance sheets deteriorate and affect the company’s financial health. Even companies prepare the balance sheet with the outdated exchange rate, ignoring exchange rate fluctuation.Investors and rating agencies are still able to observe the deterioration of the balance sheet, which will affect the following companies rating and refinancing costs. Besides increasing domestic risk-free rate will attract more foreign investment into the country to provide financing services for domestic enterprises, thereby further increasing the degree of currency mismatch. To prove the view above, this article will put currency mismatch risk premium in Mundell-Fleming model to analyze the presence of currency mismatches led to changes in interest rates and exchange rates leading a double effect. And thus the domestic commodity markets and international payments the balance of the double impact thus causing the IS curve and backward BP curve occurs under certain conditions, resulting in changes in the equilibrium point. The deviation from the equilibrium point and the economy verifies the relationship between currency mismatch and the outbreak of the Korean crisis in some degree.This paper describes the emergence of the economic situation in South Korea during the Asian financial crisis. Then introducing the concept of the "currency mismatch" in balance sheet. Then adjusting classic Mundell- Fleming model adjustments, with the theoretical derivation of Dale F. Gray and Samuel W. Malone(2008), adding the "currency mismatch" caused the risk premium to the classic Mundell- Fleming model, then analysing the double effects of interest rate and exchange rate on BP curve and IS curve, changing the classic Mundell- Fleming model shape to find the new equilibrium point. Finally, we apply the theoretical results above to the South Korea to find out the economic operation deviates from the point and the equilibrium point is the cause of the outbreak of the crisis.Finally, I will describe the characteristics of China’s currency mismatch and give countermeasures and suggestions.