Archive for the ‘Forex’ Category

FOREX is a huge market of currency traders, active 24 hours a day. It is inherently speculative in nature. Approximately, 90% of all transactions in the currency market are speculative; while the remaining is done by big institutions for hedging purposes. The volume of daily transactions could well exceed $3 trillion. It is a highly liquid market, albeit risk of default. It is unregulated and mostly participated by OTC Institutional dealers. Different countries have now put in regulations to control/discipline inflow of foreign cash flowing inside and outside of their country. Big cash flows can have substantial impact on foreign currency account of the recipient country, in particular for the emerging economies.

DISCLAIMER: The views expressed in this Blog are my personal views/analysis. It does not represent views of any organization or group, for which I am doing consulting or employment. The purpose of this blog is academic and informative; and is not sale of any product or service. The author does not own responsibility (liability) for any information presented in this blog; as investment information tends to change rapidly.

The Global interest rates have become polarized – high rates in emerging economies and dampened rates in the developed economies. This situation provides ideal breeding ground for arbitrageurs to execute “Carry Forward Trades”. Interest rates are at record low in US, Japan and Europe; while emerging economies are tightening rates to curb potential inflationary pressures. Note arbitrageurs are opportunists who would cash on price disparities existing between similar assets. Carry forward trade envisages borrowing at lower rates and investing (lending) at dearer rates, and pocketing the difference. This activity in most cases would stoke the prices of assets in emerging economies like China, and sometimes results in inflated bubbles of assets.
DISCLAIMER: The views expressed in this Blog are my personal views/analysis. It does not represent views of any organization or group, for which I am doing consulting or employment. The purpose of this blog is academic and informative; and is not sale of any product or service. The author does not own responsibility (liability) for any information presented in this blog; as investment information tends to change rapidly.