Principles of Macroeconomics / Unit 13 MAC 1217 short lesson, about 20 seconds
The Currency Mismatch
Captions available
The idea
A bank borrows in a foreign currency, converts, and lends at home in the local one. If the local currency then falls sharply, borrowers repay in full locally while the bank cannot cover its foreign debt.
In practice
Nothing went wrong with the loans. The mismatch alone did the damage.
Where people slip
When many large banks fail together, demand collapses and a deep recession follows.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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