In the currency market, one of the most successful traders in history is considered to be George Soros. George Soros's career began with the founding in 1969, the fund Quantum to Curacao (an island in the archipelago of the Lesser Antilles in the West Indies). During its existence, the Quantum Fund had a large number of successful speculative trading in the Forex market. For example, only in the spot market in 1996, Quantum Fund earned income commensurate in size with annual revenues of the entire corporation McDonald 's. However, the most successful transaction George Soros is a transaction in currency speculation in the British pound in 1992, thanks to which in the past month received about US $ 2 billion in net profit. Thanks to this success and the fact he was driven by George Soros gained a reputation as a man who "broke the Bank of England."
Equally successful currency speculation George Soros obliged established in the early 90-ies of the situation on the world stage. In 1979, on the initiative of Germany and France, it was created the European Monetary System ( EMS ). The aim was to maintain the stability of EMU exchange rates of the European countries included in the system, as well as preparations for monetary integration. Initially, the EBU were Germany, France, Italy, the Netherlands, Belgium, Denmark, Ireland and Luxembourg. The mechanism of retention rates of exchange, which is a rod EBU, based on the introduction of the European currency unit ECU (European CurrencyUnit, ECU), which was the prototype of today's euro (EUR). For each country, member of the European monetary system, set the central rate against the ECU and the trading band within which the exchange rate changes are allowed. The member countries of EMU had any means to maintain the exchange rate of the national currency in these conditions or withdraw from the system. Central rate of the countries of the EMU, the terms of the agreement could be corrected, and the period from 1979 to 1987. it happened nine times.
In 1990, Great Britain entered the EMU, and the pound Sterling (GBP) was fixed at the level of 2.95 German marks (DEM) with a valid currency corridor ± 6%. By mid-1992, through the mechanism of retention of foreign exchange rates, managed to achieve a significant reduction in the rate of inflation in the European countries participating in the EMU. However, the artificial maintenance of exchange rates within the exchange rate band is a growing confidence among investors. The situation worsened after the reunification of East and West Germany in 1989. The weakness of the East German economy led to an increase in government spending, prompting the Central Bank of Germany (Bundesbank) to put into circulation more money. This policy led to inflation, to which the Bundesbank responded to rising interest rates.High interest rates attracted foreign investors, which has caused an increased demand for the German mark and, consequently, increasing its rate.United Kingdom related agreement on the EMU had to maintain the rate of their national currency within the set against the German mark exchange rate band. The UK economy at the time was weakened, the country has a high unemployment rate. Higher interest rates after Germany in such conditions could only aggravate the situation. Other opportunities to strengthen the national currency in the short term, the United Kingdom was not. In such circumstances, George Soros, and many other investors bet that the United Kingdom can not long retain rate of the national currency at the appropriate level, and it will either have to announce its devaluation (depreciation), or abandon a retention exchange rates.
George Soros was decided to borrow pounds sterling (GBP), sell them for German marks (DEM), which invest in the German assets. As a result, it has been sold about 10 billion pounds. George Soros was not alone in his reasoning, and many investors followed suit. As a result of speculation already precarious economic situation in the UK is even more aggravated. The Central Bank of the UK in an attempt to rectify the situation and raise the rate of national currency bought at the expense of its reserves of about 15 billion pounds. But the expected result to no avail. Then September 16, 1992, the day that would later be called "Black Wednesday", the Central Bank announced an increase in UK interest rates from 10% to 12% in an attempt to neutralize the prevailing excitement. But expectations of British politicians did not materialize.
Investors who sold pounds were confident that they would receive a huge profit after a collapse of its future course. Several hours later, the Bank of England has promised that the interest rate will be raised to 15%, but traders still continued to sell sterling in large quantities. This continued until 19:00 the same day, after which the General Treasurer Norman Lamont announced that Britain leaves the holding mechanism of exchange rate and interest rate will be reduced to its previous level of 10%. From that day started the fall of the pound sterling, which over the next five weeks, fell by almost 15% against the German mark and by 25% against the US dollar. This brought enormous profits fund Quantum - within a month, George Soros earned about $ 2 billion buying on German assets already significantly depreciating pound sterling. The fall of the pound against the US dollar after the events described above is shown. As can be seen in just one in September 1992 the pound fell to around 3 000 points!
So George Soros - a man who "broke the Bank of England" - showed how central banks could be vulnerable to currency speculation of large investors held under artificial exchange rates. The use of borrowed funds allowed George Soros to put together a huge fortune in just a few weeks, and marked the beginning of its charity activities. As we have seen, in order to prevent the negative impact of currency speculation on the economy, central banks create reserves in the form of foreign assets. But, as experience has shown, such reserves may be ineffective if they confront the huge capital of large investors, a common goal. Today, Forex market is much more liquid than in the early 90s. Therefore, any investor, even having the billionaire capital is unlikely to be able to single-handedly for a long time to influence the course of any currency. "Black Wednesday" in September 1992 was far in the past, but all the same historical facts can not be ignored, since history tends to repeat itself.
Equally successful currency speculation George Soros obliged established in the early 90-ies of the situation on the world stage. In 1979, on the initiative of Germany and France, it was created the European Monetary System ( EMS ). The aim was to maintain the stability of EMU exchange rates of the European countries included in the system, as well as preparations for monetary integration. Initially, the EBU were Germany, France, Italy, the Netherlands, Belgium, Denmark, Ireland and Luxembourg. The mechanism of retention rates of exchange, which is a rod EBU, based on the introduction of the European currency unit ECU (European CurrencyUnit, ECU), which was the prototype of today's euro (EUR). For each country, member of the European monetary system, set the central rate against the ECU and the trading band within which the exchange rate changes are allowed. The member countries of EMU had any means to maintain the exchange rate of the national currency in these conditions or withdraw from the system. Central rate of the countries of the EMU, the terms of the agreement could be corrected, and the period from 1979 to 1987. it happened nine times.
In 1990, Great Britain entered the EMU, and the pound Sterling (GBP) was fixed at the level of 2.95 German marks (DEM) with a valid currency corridor ± 6%. By mid-1992, through the mechanism of retention of foreign exchange rates, managed to achieve a significant reduction in the rate of inflation in the European countries participating in the EMU. However, the artificial maintenance of exchange rates within the exchange rate band is a growing confidence among investors. The situation worsened after the reunification of East and West Germany in 1989. The weakness of the East German economy led to an increase in government spending, prompting the Central Bank of Germany (Bundesbank) to put into circulation more money. This policy led to inflation, to which the Bundesbank responded to rising interest rates.High interest rates attracted foreign investors, which has caused an increased demand for the German mark and, consequently, increasing its rate.United Kingdom related agreement on the EMU had to maintain the rate of their national currency within the set against the German mark exchange rate band. The UK economy at the time was weakened, the country has a high unemployment rate. Higher interest rates after Germany in such conditions could only aggravate the situation. Other opportunities to strengthen the national currency in the short term, the United Kingdom was not. In such circumstances, George Soros, and many other investors bet that the United Kingdom can not long retain rate of the national currency at the appropriate level, and it will either have to announce its devaluation (depreciation), or abandon a retention exchange rates.
George Soros was decided to borrow pounds sterling (GBP), sell them for German marks (DEM), which invest in the German assets. As a result, it has been sold about 10 billion pounds. George Soros was not alone in his reasoning, and many investors followed suit. As a result of speculation already precarious economic situation in the UK is even more aggravated. The Central Bank of the UK in an attempt to rectify the situation and raise the rate of national currency bought at the expense of its reserves of about 15 billion pounds. But the expected result to no avail. Then September 16, 1992, the day that would later be called "Black Wednesday", the Central Bank announced an increase in UK interest rates from 10% to 12% in an attempt to neutralize the prevailing excitement. But expectations of British politicians did not materialize.
Investors who sold pounds were confident that they would receive a huge profit after a collapse of its future course. Several hours later, the Bank of England has promised that the interest rate will be raised to 15%, but traders still continued to sell sterling in large quantities. This continued until 19:00 the same day, after which the General Treasurer Norman Lamont announced that Britain leaves the holding mechanism of exchange rate and interest rate will be reduced to its previous level of 10%. From that day started the fall of the pound sterling, which over the next five weeks, fell by almost 15% against the German mark and by 25% against the US dollar. This brought enormous profits fund Quantum - within a month, George Soros earned about $ 2 billion buying on German assets already significantly depreciating pound sterling. The fall of the pound against the US dollar after the events described above is shown. As can be seen in just one in September 1992 the pound fell to around 3 000 points!
So George Soros - a man who "broke the Bank of England" - showed how central banks could be vulnerable to currency speculation of large investors held under artificial exchange rates. The use of borrowed funds allowed George Soros to put together a huge fortune in just a few weeks, and marked the beginning of its charity activities. As we have seen, in order to prevent the negative impact of currency speculation on the economy, central banks create reserves in the form of foreign assets. But, as experience has shown, such reserves may be ineffective if they confront the huge capital of large investors, a common goal. Today, Forex market is much more liquid than in the early 90s. Therefore, any investor, even having the billionaire capital is unlikely to be able to single-handedly for a long time to influence the course of any currency. "Black Wednesday" in September 1992 was far in the past, but all the same historical facts can not be ignored, since history tends to repeat itself.
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