In all the above cases, before the turbulence arose in the markets, there had been for some time a gap between the exchange rate of the country’s currency and the real economic condition of the country, with that gap expanding gradually preceding the turbulence. Immediate adjustment of the foreign exchange rate is inevitable once market participants detect the situation.
In the adjustment process, the exchange rate may overshoot, giving the impression that the market is in disruption. However, it is important that the grounds for such large fluctuations be clearly identified, or otherwise, the warning signals sent out by the market, which are pointing to the expanding gap in this case, will be overlooked.