ABSTRACT
Portfolio capital is highly mobile. An optimal portfolio is a delicate equilibrium (section 6.1). Expectations play an important role and if they lose touch with fundamentals a bubble develops (section 6.2). A divergence between the nominal and the real exchange rate can be a signal that a currency crisis is in the making (section 6.3). Some recent currency crises are surveyed in section 6.4. How to prevent a crisis is discussed in section 6.5. The role of the IMF is the topic of section 6.6. Controlling capital flows is proposed by some (section 6.7). Finally, approaches to stabilizing the exchange rate are described (sections 6.8 and 6.9).
