Background

The Baltics countries consist of Estonia, Latvia and Lithuania.

Since the collapse of the Soviet Union, these countries have sought to reduce their dependence on Russia and Eastern Europe, and to increase their ties with Europe, North America and other developed countries.

Part of that realignment has been in the area of exchange-rate policy. The goal of each country has been to improve confidence in its monetary system, and attrect foreign investors, in part by pusuing a policy of currency stability.

However, currency stability has been interpreted differently by each of the three countries. Your task is to examine these differences, and interpret them from the point of view of an investment manager considering making a portfolio investment in securities in one or more of the Baltic countries.

Assignment

What is the exchange-rate policy chosen by each country?
How would you evaluate its chance of success?
What are the implications for a foreign investor?