History 2186A/B Lecture Notes - Lecture 4: Exchange Alley, Life Insurance, Financial Institution

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Week 4 financial panics: currency crises, the bank run, bubbles, crashes. When the stock market occurs, there is more equity than asset. Stock holders are asked to pay the difference with either cash or by selling their stock. Panic emerges from what people think is happening and not from what is actually happening. Panic has the ability to create a financial crisis. Coin originally made with precious metal: face value of coin is actually the amount of metal in it. The force that reduces the value of the money you have: weimar republic (germany) 1923. Exchange rates rose from 9 marks to the us dollar > 4. 2 billion marks to the us dollar: hungary after second world war (1945) Burned the bank notes instead of getting coal because it is cheaper. Citizens does not trust the currency so they must start again: in financial crises, it can create a financial crises.

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