This, in turn, as many research studies have shown, also inhibits the flow, over the medium to long-term, of foreign capital on a sustainable basis. Typically, the foreign capital has preferred the destinations which have well-developed, deep, liquid and efficient hedging institutional structures like forex derivatives.
To revisit the more relevant experience of the recent East Asian Currency Crisis, the cases of Thailand and Indonesia stand out. In Thailand, banks were required to hedge their positions by acquiring offsetting assets in foreign currency and they did so by making foreign currency loans to Domestic Corporates which became the repositories of unhedged currency and interest rate risk exposures.