NEWS ON FOREX BAZZAR

India rejects World Bank 'gloom'

noreply@blogger.com (jay) — Wed, 07 Nov 2007 12:51:00 +0000

Indian finance officials have dismissed as "doom and gloom" a report from the World Bank, which on Monday called for Delhi to rein in spending or face possible economic catastrophe.

The country's deficit will not overshoot expectations, because the outlook for growth is strong, chief economic advisor Ashok Lahiri argued.

"All the parameters are sound, with exports going up, balance of payments improving, forex reserves at over $83bn, drought and global slowdown behind us," said finance secretary DC Gupta.

"Today's position is such that we can definitely achieve targets."

Pros and cons

The comments were in reaction to a mixed report from the World Bank, which praised Indian economic progress while warning that fiscal reform was needed to avoid slowing economic growth.

Finance Minister Singh: 'Things have never been better'

India's poverty-reduction targets are based on earlier forecasts of continuing strong growth.

But a severe drought has slowed the pace of growth in recent months, and the Bank was concerned that lavish budgetary plans threatened to make the position worse.

According to some critics, the government is now focused on next year's general elections, to the exclusion of economic prudence.

'On target'

Ripostes from the two officials complement the views of Finance Minister Jaswant Singh, who recently argued that "economic conditions in India were never as good as those prevailing now."

They argue that, far from recklessly boosting spending in view of the 2004 elections, the government was being prudently optimistic.

"Last [year]... the country was hit by a severe drought and a global slowdown. Despite this, we did not overshoot fiscal targets," Mr Lahiri said.

"In fact, the fiscal marksmanship, in terms of meeting budget targets, has never been better."

High oil prices hit China growth

noreply@blogger.com (jay) — Wed, 07 Nov 2007 12:41:00 +0000

Rising oil prices are expected to hit China's growth rate this year.

The rise in the price of oil is expected to push inflation higher, discouraging consumers from spending and hitting company profits.

Oil imports to China, the world's second-largest consumer of oil, for January to July were up 40% on 2003.

As a result, growth this year is likely to slow to 9% from the forecast 9.8%, State Information Centre senior economist Niu Li told Chinese media.

China imports one third of the oil it needs and its demand for oil has been rising in line with the growth of economy.

The price of oil has been pushed higher by uncertainty about supply and rising demand. China will now have to pay an extra $8.8bn (£4.78bn) to import its usual 880 million barrels of oil this year.

Inflation fears

Higher oil prices have already pushed up production and material costs, contributing to last month's inflation figure of 5.3%, a seven-year high.

Chinese authorities have already introduced measures aimed at cooling the fast-growing economy.

The measures needed to stay in place a while longer, Guo Shuqing, China's forex chief and deputy head of the central bank, told the Securities Times.

"The problems with the current economy can be boiled down to those of the economic structure, the economic system and growth models, therefore we should make greater efforts to improve the structure," he said.

China has been a net importer of petroleum products since 1993 and of crude oil since 1996.

China lifts currency basket lid

noreply@blogger.com (jay) — Wed, 07 Nov 2007 12:34:00 +0000

China has revealed for the first time which international currencies it uses to measure its own yuan currency by.

The US dollar, the euro, the Japanese yen and the South Korean won dominate a basket of currencies introduced last month after China revalued the yuan.

China's currency had been pegged at 8.28 against the dollar for a decade, but the adjustment allowed it to float against a number of currencies.

The basket also contains the UK pound, the Thai baht and the Russian rouble.

Trading partners

The contents of the currency basket had remained a secret since China's decision to revalue the yuan on 21 July, effectively strengthening it by 2.1% to 8.11 to the dollar.

Since then, the yuan has appreciated slightly on China's restricted foreign exchange market, closing at 8.1062 to the dollar Wednesday.

"The currencies in the basket depend on the amount of foreign trade we conduct. The US, eurozone, Japan and South Korea are our biggest trading partners now," said People's Bank of China governor Zhou Xiaochuan.

However, the announcement by Mr Zhou surprised some analysts for its omission of the Taiwan dollar.

Separately, China announced further currency market reforms following last month's decision to decouple the yuan from the dollar.

The bank said it was allowing non-banking firms to trade in its onshore foreign exchange market, and was also launching forex (foreign exchange) forwards on the domestic interbank market.

China has been under pressure to liberalise it currency markets, with many critics, particularly in the US, arguing that a cheap yuan has unfairly helped Chinese exports.

US industry and shoppers upbeat

noreply@blogger.com (jay) — Wed, 07 Nov 2007 12:25:00 +0000

Faster-than-expected growth in the manufacturing sector and a surge in consumer confidence in June are boosting hopes of US economic strength.

The Institute for Supply Management's (ISM) manufacturing index surged to 53.8% in June, thanks to rising orders.

Analysts had forecast 51.5% - a figure above 50% indicates growth.

Meanwhile, the University of Michigan's consumer confidence index rose to 96 - better than the expected 94.6, and up from a reading of 94.8 in May.

Shopping boost

The news follows a similarly-bullish report from the Conference Board, which said improved employment prospects had led to a second strong monthly rise in consumer confidence.
The manufacturing sector may be managing well the headwinds stemming from high energy prices
Alex Beuzelin, Ruesch International

Retail spending makes up two-thirds of the US economy, so consumer confidence is an important barometer of economic growth prospects.

Experts suggested a mid-May dip in oil prices may also have helped, as it would have eased fuel prices for motorists.

Manufacturing relief

Despite a slight slowdown over the past six months, the manufacturing sector has now racked up 25 months of growth, according to ISM figures - something the survey's chief Norbert Ore dubbed an "encouraging trend".

"The improved rate of growth in new orders is quite encouraging, particularly when combined with a slower rate at which prices are escalating," he added.

However, Mr Ore did warn that the stronger dollar and higher oil prices remained a concern, despite the fact that the figures indicate a slowing rise in the price of raw materials.

"The ISM came out higher than forecast, so that provides some encouraging news that the manufacturing sector may be managing well the headwinds stemming from high energy prices," said Alex Beuzelin, forex market analyst at Ruesch International.

He added that the figures were unlikely to change the Fed's current stance on interest rates.

The Fed has been increasing rates at a "measured pace" of a 0.25% rise each month as it tries to maintain economic growth while keeping a lid on inflation.

How to lose half a billion

noreply@blogger.com (jay) — Wed, 07 Nov 2007 12:24:00 +0000

Allied Irish Bank's admission that it has lost more than £500m on the foreign exchange markets thanks to a trader who has since absconded sounds impossible to believe.

Except, of course, that it happened in 1995, when Nick Leeson brought down Barings Bank, after losing at least £800m in the derivatives market.

After Leeson people are expected to have much tighter systems in place... Internal controls, auditors, even regulators are looking very bad over this

London trader

No-one is suggesting that AIB is going under. AIB is a retail bank with deep pockets, while Barings was badly undercapitalised.

But still the implications are serious.

The complexity of the trading - and the memory of how Nick Leeson broke Barings - means that oversight systems should have been much more robust, market watchers say.

"This isn't going to hurt AIB as badly as Barings in financial terms," one London trader told BBC News Online.

"But after Leeson people are expected to have much tighter systems in place. Their internal controls, the auditors, even the regulators are looking very, very bad over this.

There could well be other skeletons in the cupboard

London trader

"And there could be others like this. The big investment banks have really tight procedures, but the more staid mid-tier outfits have never been looked at as closely.

"There could well be other skeletons in the cupboard."

Missing, believed lost

Still, to the layman the idea of a bank "discovering" that it has lost half a billion pounds in buying and selling foreign currency sounds like lunacy.

But the hole Allied Irish Banks has discovered in its accounts pales beside the sheer magnitude of foreign exchange trading worldwide.
AIB said the fraud
Consisted of a very large number of trades
Was a sophisticated conspiracy
Probably involved internal and external collusion
Might have been for financial benefit for individuals or just a mess

Trillions of dollars pass daily through the forex markets, as they are known - the same money, churning from one currency to another minute by minute.

Traders look for fluctuations in exchange rates, and take advantages of situations where a rate looks promising compared with where they think it is likely to move in the future.

On the face of it, that is not too complicated a proposition.

But bets can go wrong, so traders cover their backs by hedging: using options, bets with another institution that will pay out if a currency falls or rises a certain amount by a certain date.

The theory is that the options will offset losses should a guess go wrong. If it goes right, then the option does not have to be cashed in, and the only cost is the commission for taking out what amounts to insurance in the first place.

Cooking the books

It is this part of the forex business which is hurting AIB.

Early indications are that its trader ran up huge losses by backing - metaphorically speaking - the wrong horse with what AIB chief executive Michael Buckley has called "a very, very large number of trades".

Traders are meant to follow strict rules on allowable risk, given the huge sums that can be lost.

But this man did not get authorisation for his bets, and so he tried to cover his tracks. He created imaginary options deals in the firm's books, deals which never took place.

A cursory glance would have made it seem that the books balanced, that the losses were being matched by profits on options elsewhere which were the mirror image of the failed trades.

Somehow, the "back office" - the part of a trading operation which checks what the front-line traders are doing and looks after the book-keeping - overlooked it.

AIB believes that could well be the result of an internal conspiracy.

As any unlucky gambler knows, once you fall deep into the red the bets needed to get back out again soon spiral out of control.

And before long, $750m had simply evaporated.

War talk sends euro near four-year high

noreply@blogger.com (jay) — Wed, 07 Nov 2007 12:22:00 +0000

in early European trade, its highest since January 2000.

"Last week's close above $1.0700 has forced us to adjust our view," said Nicole Elliott of Mizuho Corporate Bank.

"It suggests we have underestimated bullish momentum and the gathering anti-dollar feeling."

The fresh dollar weakness came as world stock markets tumbled and UN arms inspectors delivered an update on their work in Iraq to the Security Council.

Some market experts discounted the arms inspectors' report as a driver of the forex market.

Said Robert Sinche, currency strategist at Citibank: "Has Iraq proven that it has disarmed? No. Is there proof that it is holding weapons of mass destruction? No.

"So the forex market is saying there is no clear conclusion to support one view or the other, and it will continue to take direction from other markets."

Currency traders go online

noreply@blogger.com (jay) — Wed, 07 Nov 2007 12:21:00 +0000

Some of the world's largest foreign exchange dealers are to launch an online trading service prompting fears of job cuts in the City.

More than 50 banks, accounting for more than half the global turnover of $1,500bn in foreign exchange transactions per day, on Tuesday announced the setting up of the online currency market Atriax.

Traders who log onto Atriax, which will become fully operational next spring, will receive quotes in more than 100 currencies, said the site's backers, led by Chase Manhattan Bank, Citibank and Deutsche Bank, and data group Reuters.

The platform will modernise a market which, while the world's largest in value terms, operates on an ad hoc basis, Atriax's chief executive elect Dan Morehead said.

Forex revolution

"The [foreign exchange] industry is fairly antiquated," Mr Morehead said. "People still make phone calls, scurrying from one bank to another to get prices.

"The industry does not even have a centralised marketplace, let alone an electronic one."

But some observers predict that the launch of Atriax will prompt more job losses in the foreign exchange markets.

When eleven European currencies disappeared into the euro at the beginning of last year, many foreign exchange traders lost their jobs.

Bank mergers have also reduced the need for foreign exchange trading between institutions.

Staff to go

Atriax would, by enabling back office operations to be automated, allow banks to cut back on back office staff.

The unveiling of Atriax follows a series of announcements of online trading platforms.

Thirteen banks including UBS Warburg, JP Morgan and HSBC, have already unveiled the web-based forex platform FXall, set to go live later this year.

An FXall spokeswoman told BBC News Online: "We do see Atriax as a competitor. But it will absolutely not mean the end of FXall."

FXall's backers account for about one third of the daily volumes on currency markets.

Four mining companies on Monday revealed they are developing web-hosted marketplaces for metals trading.

The same firms are backing Global Coal, an internet-based trading platform timetabled for launch by February.

Asian markets plunge to new lows

noreply@blogger.com (jay) — Wed, 07 Nov 2007 12:20:00 +0000

Asian currencies fell in late trade on Monday on fears of a contagion effect after Seoul abandoned its defence of the won, sending the currency crashing to a low of 1,008.6 to the dollar.

The fall triggered intervention by a couple of central banks.

Shortly after the midday break on Monday, South Korea's central bank shocked forex dealers by announcing it would no longer defend the 986 won level.

Dealers said the move was probably due to mounting concerns over the peninsula's dwindling foreign exchange reserves.

The news sent the won reeling to an all-time low and daily limit of 1,008.6 to the dollar.

The Singapore dollar sank to a low of 1.5825 on the news after hovering around 1.5765 in the morning on Singapore's robust 10.1% gross domestic product (GDP) growth in the third quarter.

The Taiwanese dollar plunged to a 10-year low to the dollar. It was quoted 31.366/500 at 1030 GMT.

The plunge led Taiwan's central bank governor Liang Cheng-chin to say it would intervene if the currency over-depreciated. He said there was no intervention on Monday.

The Indonesian rupiah was not spared the won's crash.

It broke the 3,500 level to a low of 3,505 before going back to 3,490/500 compared to an open at 3,440/60.

Dealers said the rupiah was also hit by concerns over potential concerted intervention by various central banks.

CAP probes suspected forex fraud

noreply@blogger.com (jay) — Wed, 07 Nov 2007 12:17:00 +0000

British brokerage ICAP has hired lawyers to probe currency fraud allegedly carried out by three of its New York-based employees.

The three ICAP staff are among 47 currency traders arrested in a high-profile swoop by the FBI last week.

ICAP said the trio had not traded on the firm's behalf, and added that its own finances appeared unaffected.

"I believe this to be just an isolated incident of three individuals," said ICAP chief executive Michael Spencer.

"I hope that the issue is resolved rapidly."

The lawyers hired by ICAP, an interdealer broker, are to investigate the full extent of the employees' alleged activity.

Arrests

The 47 currency traders detained in the FBI raid were later charged with a range of criminal offences, including fraud.

They include bank staff accused of taking kickbacks to rig transactions so that their employers would lose money, and "boiler room" operators who allegedly sold worthless investments to unsuspecting members of the public.

The FBI swoop netted employees of one other UK brokerage - Tullet Libery, a subsidiary of Collins Stewart - as well as staff at big name Wall Street banks including JP Morgan Chase and UBS.

The companies themselves are not under investigation.

ICAP's announcement came as it unveiled a 47% increase in first half pre-tax profits, and said it was confident of further growth in the month ahead.

"Market conditions remain good for ICAP, and our overall position is very strong," Mr Spencer said.

ICAP shares closed up 5p at £13.8

India bullish on strong rupee

noreply@blogger.com (jay) — Wed, 07 Nov 2007 12:07:00 +0000

The Indian rupee achieved a 26-month high this week and corporate India, far from worrying about its exports, is in confident mood.

Conventional wisdom has it that when a currency begins to strengthen, it starts to hurt exports.

Not in India. Or at least, not just yet.

India is counting the benefits of economic reform

So far, the only note of caution comes from infotech exporters, who express some alarm at the rupee's non-stop march upwards.

The bullish mood is not surprising, considering the rupee has traditionally depreciated against the dollar by between 3% and 4% every year.

This is the first time it has reversed the trend, gaining nearly 4%.

India's programme of economic reform, which began 12 years ago, is now seen to be having an impact right the way across the economy.

Prices are falling, inflation is in check, exports are booming, the imports bill is coming down and foreign exchange reserves are at an all-time high of more than $81bn.

"In the longer term it's sound for the Indian economy. The rising strength of the Indian rupee will bring our purchasing power up on a par with other currencies," says Ashwani Kakkar, of the money changing company, Thomas Cook.
The appreciation of the rupee is a new phenomenon
Razzak Allana

Good news all around then.

"The only bad news is there's no bad news," says forex expert Jamal Mecklai.

Sanjay Kothari, a leading exporter of finished gemstones and jewellery, is a also happy man.

He told the BBC he wouldn't mind if the value of the Indian rupee rises even further. "It's good for the country, so why should I get worried, " he says.

Exporters worried?

"I expect the rupee to rise for another five years. It can come down to even 38 rupees," adds Jamal Mecklai. (At present it's 46.80 to a dollar)

Razzak Allana, founder of the 300-million dollar Allanasons Exports, says there's no reason to boast, but the strengthening rupee has its own logic.

"The appreciation of the rupee is a new phenomenon, we have never had forex reserves of over 80 billion dollars," he said.

The rupee's non-stop rise in the last couple of years has had little impact on export performance.

Just last year, exports rose by 16.76% in the first 11 months of 2002-2003 (April 2002-February 2003).

Forex expert Jamal Mecklai: "No bad news"

So, are Indian exporters not affected at all?

"Our exports are import-depended. Nearly 70% of our raw material is imported from Brazil, Belgium and the UK, " says Sanjay Kothari, who exports gemstones and jewellery.

Gemstones and jewellery accounted for $8 billion of India's exports last year.

Kothari believes they will do even better the next.

Razzak Allana, who exports coffee, oil and processed foods, says it's all down to the Indian farmer's market-savvy pricing strategy.

"The Indian coffee grower, who doesn't know a word of English, would often ask, what's the price in New York, how much in London, and then he would adjust his price to suit the international market.

So, the rupee appreciation doesn't affect anyone of us," says Allana.
Our exports are import-depended. Nearly 70% of our raw material is imported from Brazil, Belgium and the UK
Sanjay Kothari

Experts believe India's sunshine infotech industry is sure to be hit hard.

However, the big boys of Indian IT told BBC Online, they are well prepared to cope.

Infosys, one of the country's most successful infotech companies, said it was expecting that the majority of the growth for next year would come from volume growth.

Analyst Mecklai believes Indian IT is prepared for falling profits.

"They are having troubles with their margins but not with their top lines," he says.

Until recently, companies such as Infosys and Wipro concentrated on their main export market, the US. But now, they've begun targeting Japan and Europe too.

The argument is that any losses faced by a company like Infosys on its dollar income will be compensated by rising earnings from the strengthening euro.

Rupee is climbing

Most analysts attribute the rupee's gains to the weakening dollar. Some predict the rupee will continue to gain, because the dollar will continue to fall, as the US has a large current account deficit and a weakening stockmarket.

But there is another important reason for the rupee's upward mobility - India's current account surplus, which is nearly $3 billion.

It is a remarkable sum, considering the country has frequently been in deficit.

India's balance of payment crisis of 1991 was one factor that triggered sweeping reform and economic liberalisation.

Another important reason for the rupee's rise is the strong growth of infotech exports, which rose by 30% last year.

Experts say interest rates in India are still much higher than in the many Western countries where large Indian diasporic communities are settled.

It has led to Indian expats investing money in India, they say.

Forex giants head for the net

noreply@blogger.com (jay) — Wed, 07 Nov 2007 11:59:00 +0000

The three largest players in the global currency market are teaming up with Reuters to offer foreign-exchange services over the internet to major clients, according to a report in Monday's Wall Street Journal.

The report said US banks Chase Manhattan and Citigroup and Germany's Deutsche Bank were creating a new company together with the news and financial information provider.

The move is the latest and most significant sign that big players in currency markets are turning to the internet to answer their clients' demands for faster services at lower prices.

Chase, Citigroup and Deutsche Bank together have a market share in world foreign exchange trading of almost 30%.

Other partners sought

The Wall Street Journal reported sources familiar with the deal as saying that the four founders were now seeking to include a further 50 or 60 international banks in the venture before publicly announcing its creation.

The new venture is set to compete directly with FX Alliance, an internet-based currency venture recently established by 13 other major international banks.
Top five firms for foreign exchange trading by market share
Deutsche Bank
12.53%
Chase Manhattan Bank
8.26%
Citigroup
8.07%
UBS Warburg
5.02%
HSBC
4.55%
Source: Euromoney

They include Credit Suisse First Boston, Goldman, Sachs Group, HSBC Holdings, JP Morgan, Morgan Stanley Dean Witter and UBS Warburg - all of whom are among the world's top 10 foreign exchange traders.

"There is room for two companies - EBS and Reuters - on the interbank matching system so I don't see why there might not be room for two here," said one banker in London.

"They could end up specialising in different things but if they don't differentiate themselves like this, it will come down to prices. In the short term, Citi, Deutsche, and Chase could be very aggressive on the pricing."

One-stop shop

Both services aim to offer their customers - expected to be mainly multinational corporations, institutional investors and hedge funds - a one-stop shop for currency services.

These would include spot, or regular, trades, more sophisticated financial instruments such as options and forwards and research and analytical modelling tools.

Clients would have 24-hour access to the global foreign exchange market, in which transactions worth a total of about $1,500bn are conducted each day.

The Wall Street Journal said the four companies planned to launch the new venture in early 2001 and have it fully operational by the third quarter of next year.

Citigroup and Reuters declined to comment on the report. Deutsche Bank and Chase Manhattan were unavailable to comment.

FXall Daily Trading Volume Exceeds $90 Billion

noreply@blogger.com (jay) — Wed, 07 Nov 2007 11:57:00 +0000

FXall, the world's leading foreign exchange platform, today announced record trading volume of more than $90 billion in a single day. Average daily volume on the platform for September was up by more than 44% versus the same period in 2006.

The increases were driven by a combination of new clients coming onto the platform as well as growth from existing clients including asset managers, corporations, banks, broker-dealers and hedge funds. In particular, FXall saw strong growth in trading activity by the investment community, which now accounts for more than 50% of volumes traded over the platform.

Two key factors contributed to volume growth. Regulatory requirements for greater control and transparency mean clients naturally gravitate to FXall as a platform offering a comprehensive audit trail and best execution. In addition, FXall continues to anticipate the changing needs of the rapidly growing FX market with the proactive development of new products and enhanced services.

Phil Weisberg, Chief Executive Officer of FXall, said: “The sustained increase in trading volumes on FXall reflects our commitment to innovation and the continuous development of our client offering. As FX trading volumes continue to rise, more and more traders are turning to online platforms to meet their increasingly complex needs. We look forward to even stronger growth going forward as we continue to extend and enhance the range of services we provide".
About FXall
FXall is the leading portal for online foreign exchange trading, offering customers foreign currency trade execution, access to research and straight through processing. By combining streamlined workflow, competitive FX prices and a complete audit trail, FXall delivers improved control and cost savings at every stage of the deal lifecycle.
FXall provides customers with the ability to meet best practice guidelines prescribed by regulatory bodies - for more information visit: http://www.fxall.com/about/BestPracticeFX.pdf
FXall is an independent company with offices in New York, London, Boston, Tokyo and Singapore.

FXall's services are not intended for, and are not available to, private customers, and are not intended for distribution into any jurisdiction where such distribution is restricted by law or regulation. FXall's services do not constitute investment advice or an advertisement, offer, or solicitation of an offer, for the purchase or sale of any investment, securities or other property, or a representation that any investment, security or other property is suitable for any person.

FXall may act through FX Alliance, LLC (a Delaware, USA limited liability company), FX Alliance Limited (regulated by the Financial Services Authority), FX Alliance International, LLC (ARBN 097 253 640, a Delaware, USA company, members' liability limited).

FXall, Altair, QuickFill, QuickOMS, QuickConnect, and all associated logos, are the trademarks of FX Alliance LLC.

Argentina imposes new forex controls

noreply@blogger.com (jay) — Wed, 07 Nov 2007 10:51:00 +0000

New exchange controls slapped on the peso by Argentina's central bank have failed to stem a slide in the currency's value to record lows.

Startled by the accelerating slump, the bank threw its reserves at the peso.

But with nearly one tenth of the reserves - totalling $1.2bn - spent to little avail, the Central Bank has now banned foreign exchange traders and banks from buying dollars from it at the market rate.

The new controls also limit the sale of dollars to $1,000 for each individual or $10,000 per company, while bureaux de change have had their opening hours slashed by half to just 3-1/2 hours a day.

No end in sight

Still, so far there has been little effect.

Before devaluation in January, the peso was pegged at parity with the US dollar.

The decision to let it float saw a starting rate of 1.40 pesos to the greenback.

By 1800 GMT, a single dollar was buying 3.75 pesos - a fall of 75%.

"In the absence of having some credible fiscal policy and economic management, spending reserves was just throwing money away," IDEAglobal head of Latin American research Doug Smith told the Reuters news agency.

Old fears

The sharp fall is raising fears that inflation could shoot up, since the shifting currency means the price of any goods sourced from outside Argentina is shooting up.

Argentines, half of whom are below the poverty line amid unemployment above 20%, fear that the moves could be the harbinger of a return to the bad old days.

The dollar-peso peg was introduced in the early 1990s to stem rampant inflation and turn around an economy hampered by deep-seated corruption.

But the country's heavy debt burden - brought on by years of excessive government spending - combined with a four-year recession and ill-timed austerity measures demanded by lenders to force the country into decline, default and finally devaluation.

Now the government - the fifth since early December - of President Eduardo Duhalde is struggling to keep the country going, desperate for new loans from a very reluctant International Monetary Fund.

Aldo Avram, director of economic consultancy Exante, told the BBC's World Business Report he believes Argentina should consider dollarisation although there would be political problems, he said.

It must be an ordered dollarisation, he added.

"Hyperinflation is a way in which you go to a dollarisation but in a disordered and chaotic way."

Argentina imposes new forex controls

noreply@blogger.com (jay) — Tue, 06 Nov 2007 20:11:00 +0000

Argentina imposes new forex controls

noreply@blogger.com (jay) — Tue, 06 Nov 2007 17:42:00 +0000

The Indian rupee achieved

noreply@blogger.com (jay) — Sun, 28 Oct 2007 04:32:00 +0000

The Indian rupee achieved a 26-month high this week and corporate India, far from worrying about its exports, is in confident mood.
Conventional wisdom has it that when a currency begins to strengthen, it starts to hurt exports.
Not in India. Or at least, not just yet.

So far, the only note of caution comes from infotech exporters, who express some alarm at the rupee's non-stop march upwards.
The bullish mood is not surprising, considering the rupee has traditionally depreciated against the dollar by between 3% and 4% every year.
This is the first time it has reversed the trend, gaining nearly 4%.
India's programme of economic reform, which began 12 years ago, is now seen to be having an impact right the way across the economy.
Prices are falling, inflation is in check, exports are booming, the imports bill is coming down and foreign exchange reserves are at an all-time high of more than $81bn.
"In the longer term it's sound for the Indian economy. The rising strength of the Indian rupee will bring our purchasing power up on a par with other currencies," says Ashwani Kakkar, of the money changing company, Thomas Cook.
The appreciation of the rupee is a new phenomenon
Razzak Allana
Good news all around then.
"The only bad news is there's no bad news," says forex expert Jamal Mecklai.
Sanjay Kothari, a leading exporter of finished gemstones and jewellery, is a also happy man.
He told the BBC he wouldn't mind if the value of the Indian rupee rises even further. "It's good for the country, so why should I get worried, " he says.
Exporters worried?
"I expect the rupee to rise for another five years. It can come down to even 38 rupees," adds Jamal Mecklai. (At present it's 46.80 to a dollar)
Razzak Allana, founder of the 300-million dollar Allanasons Exports, says there's no reason to boast, but the strengthening rupee has its own logic.
"The appreciation of the rupee is a new phenomenon, we have never had forex reserves of over 80 billion dollars," he said.
The rupee's non-stop rise in the last couple of years has had little impact on export performance.
Just last year, exports rose by 16.76% in the first 11 months of 2002-2003 (April 2002-February 2003).

So, are Indian exporters not affected at all?
"Our exports are import-depended. Nearly 70% of our raw material is imported from Brazil, Belgium and the UK, " says Sanjay Kothari, who exports gemstones and jewellery.
Gemstones and jewellery accounted for $8 billion of India's exports last year.
Kothari believes they will do even better the next.
Razzak Allana, who exports coffee, oil and processed foods, says it's all down to the Indian farmer's market-savvy pricing strategy.
"The Indian coffee grower, who doesn't know a word of English, would often ask, what's the price in New York, how much in London, and then he would adjust his price to suit the international market.
So, the rupee appreciation doesn't affect anyone of us," says Allana.
Our exports are import-depended. Nearly 70% of our raw material is imported from Brazil, Belgium and the UK
Sanjay Kothari
Experts believe India's sunshine infotech industry is sure to be hit hard.
However, the big boys of Indian IT told BBC Online, they are well prepared to cope.
Infosys, one of the country's most successful infotech companies, said it was expecting that the majority of the growth for next year would come from volume growth.
Analyst Mecklai believes Indian IT is prepared for falling profits.
"They are having troubles with their margins but not with their top lines," he says.
Until recently, companies such as Infosys and Wipro concentrated on their main export market, the US. But now, they've begun targeting Japan and Europe too.
The argument is that any losses faced by a company like Infosys on its dollar income will be compensated by rising earnings from the strengthening euro.
Rupee is climbing
Most analysts attribute the rupee's gains to the weakening dollar. Some predict the rupee will continue to gain, because the dollar will continue to fall, as the US has a large current account deficit and a weakening stockmarket.
But there is another important reason for the rupee's upward mobility - India's current account surplus, which is nearly $3 billion.
It is a remarkable sum, considering the country has frequently been in deficit.
India's balance of payment crisis of 1991 was one factor that triggered sweeping reform and economic liberalisation.
Another important reason for the rupee's rise is the strong growth of infotech exports, which rose by 30% last year.
Experts say interest rates in India are still much higher than in the many Western countries where large Indian diasporic communities are settled.

Dollar plunges to fresh euro low

noreply@blogger.com (jay) — Fri, 19 Oct 2007 05:09:00 +0000

Dollar plunges to fresh euro low
The US dollar fell to a new low against the euro after the latest piece of US economic data.
Labour department figures showed the number of people seeking unemployment benefit had leapt by the largest amount since February.
The data boosted expectations that US interest rates could be cut further before the end of the year.
The euro hit a high of $1.4305 on Thursday, before settling at 1.4293 in late US trade.
It broke the previous record, set on 1 October, when one euro bought $1.4282.
Expectation that the US will lower borrowing costs - while intended to boost the economy - can also make the currency less attractive.
The move can act as a brake on investments in the dollar, as investors seek to place their money where deposits can lead to better returns.

Export implications

The labour department figures, which showed an extra 28,000 claims for benefit, came a day after data showing the construction of new homes and apartments in the US had plunged to a 14-year low in September.
The dollar has been sliding since the Federal Reserve cut rates from 5.25% to 4.75% in September to help rejuvenate confidence in the world's largest economy.
This followed a summer of turmoil in the world's credit markets, sparked by record loan defaults in the US sub-prime mortgage sector.
Since then, a raft of mostly disappointing economic news and soft inflation figures has prompted anticipation of further rate cuts.
While analysts expect the US Federal Reserve to cut interest rates, the European Central Bank is tipped to raise rates within coming months.
There are fears in Europe that a strong euro relative to the dollar could harm exports to the US and China.

How to lose

noreply@blogger.com (jay) — Fri, 19 Oct 2007 05:03:00 +0000

How to lose half a billion

No-one is suggesting that AIB is going under. AIB is a retail bank with deep pockets, while Barings was badly undercapitalised.

But still the implications are serious.
The complexity of the trading - and the memory of how Nick Leeson broke Barings - means that oversight systems should have been much more robust, market watchers say.
"This isn't going to hurt AIB as badly as Barings in financial terms," one London trader told BBC News Online.
"But after Leeson people are expected to have much tighter systems in place. Their internal controls, the auditors, even the regulators are looking very, very bad over this.

"And there could be others like this. The big investment banks have really tight procedures, but the more staid mid-tier outfits have never been looked at as closely.
"There could well be other skeletons in the cupboard."
Missing, believed lost
Still, to the layman the idea of a bank "discovering" that it has lost half a billion pounds in buying and selling foreign currency sounds like lunacy.
But the hole Allied Irish Banks has discovered in its accounts pales beside the sheer magnitude of foreign exchange trading worldwide.

Trillions of dollars pass daily through the forex markets, as they are known - the same money, churning from one currency to another minute by minute.
Traders look for fluctuations in exchange rates, and take advantages of situations where a rate looks promising compared with where they think it is likely to move in the future.
On the face of it, that is not too complicated a proposition.
But bets can go wrong, so traders cover their backs by hedging: using options, bets with another institution that will pay out if a currency falls or rises a certain amount by a certain date.
The theory is that the options will offset losses should a guess go wrong. If it goes right, then the option does not have to be cashed in, and the only cost is the commission for taking out what amounts to insurance in the first place.

Cooking the books

It is this part of the forex business which is hurting AIB.
Early indications are that its trader ran up huge losses by backing - metaphorically speaking - the wrong horse with what AIB chief executive Michael Buckley has called "a very, very large number of trades".

Traders are meant to follow strict rules on allowable risk, given the huge sums that can be lost.
But this man did not get authorisation for his bets, and so he tried to cover his tracks. He created imaginary options deals in the firm's books, deals which never took place.
A cursory glance would have made it seem that the books balanced, that the losses were being matched by profits on options elsewhere which were the mirror image of the failed trades.
Somehow, the "back office" - the part of a trading operation which checks what the front-line traders are doing and looks after the book-keeping - overlooked it.
AIB believes that could well be the result of an internal conspiracy.
As any unlucky gambler knows, once you fall deep into the red the bets needed to get back out again soon spiral out of control.

War talk sends

noreply@blogger.com (jay) — Fri, 19 Oct 2007 04:23:00 +0000

The euro on Monday reached a near four-year high against the US dollar on continuing fears over a war on Iraq and the global economic outlook.
The euro reached $1.0907 at one point, a level not seen since March 1999, before edging back to $1.0836 at 1700 GMT.

"It's a matter of a concern for us if the fall in the value of the dollar is too rapid," Germany's central bank president and European Central Bank board member Ernst Welteke said.
Continuing weakness of the dollar could make exports from the eurozone, where the leading economies of Germany and France are struggling, uncompetitive on the global markets.
The sell-off of the dollar also sent the UK pound to a new three-year high against the greenback, while the safe-haven Swiss franc maintained a four-year high.
Anti-dollar feeling

Sterling rose as high as $1.6377 in early European trade, its highest since January 2000.
"Last week's close above $1.0700 has forced us to adjust our view," said Nicole Elliott of Mizuho Corporate Bank.

"It suggests we have underestimated bullish momentum and the gathering anti-dollar feeling."
The fresh dollar weakness came as world stock markets tumbled and UN arms inspectors delivered an update on their work in Iraq to the Security Council.

Some market experts discounted the arms inspectors' report as a driver of the forex market.
Said Robert Sinche, currency strategist at Citibank: "Has Iraq proven that it has disarmed? No. Is there proof that it is holding weapons of mass destruction? No.
"So the forex market is saying there is no clear conclusion to support one view or the other, and it will continue to take direction from other markets."

Zimbabwe axes forex petrol outlet

noreply@blogger.com (jay) — Wed, 17 Oct 2007 06:32:00 +0000

Zimbabwe axes forex petrol outlet

Zimbabwe has stopped motorists buying petrol in foreign currencies, a system introduced six months ago.
Reserve Bank Governor Gideon Gono told state media that its abuse had led to high black market prices.
Zimbabwe is facing an economic crisis with a chronic shortage of fuel and basic food stuffs.

Meanwhile, a government minister has warned financial institutions against lending to white farmers in case they are farming "illegally".
Some 4,000 white farmers have been evicted from their land since a controversial land reform programme began in 2000.
Land has been redistributed to some 150,000 black farmers but agricultural production has halved.

Apology

Mr Gono said the foreign currency coupon system, where certain garages accepted payment in foreign currency had initially worked well, but it had only ever been intended as a temporary measure, to reduce queues.

"Some members of the public started to abuse the facility and used it for speculative and parallel market activities, thus militating against its main objective," he told the Sunday Mail newspaper.
He said he regretted any inconvenience, but it was being scrapped "for the best interest of the wider economy".

In the same paper, Land Reform Minister Didymus Mutasa accused Mr Gono's Reserve Bank and unspecified financial institutions of getting into contract farming with white farmers without checking their status on the farms with his ministry.
He said before any loan can be extended to a white farmer, his ministry needed to be consulted.

Mr Mutasa claims new black farmers are being sidelined on the grounds that they do not have collateral support, while white farmers are perceived to have the capacity to repay as they have title deeds.
President Robert Mugabe has always accused western countries led by former colonial power Britain of sabotaging the economy because of opposition to land reform.

ICAP probes suspected forex fraud

noreply@blogger.com (jay) — Wed, 17 Oct 2007 06:21:00 +0000

ICAP said the trio had not traded on the firm's behalf, and added that its own finances appeared unaffected.
"I believe this to be just an isolated incident of three individuals," said ICAP chief executive Michael Spencer.
"I hope that the issue is resolved rapidly."
The lawyers hired by ICAP, an interdealer broker, are to investigate the full extent of the employees' alleged activity.
Arrests
The 47 currency traders detained in the FBI raid were later charged with a range of criminal offences, including fraud.
They include bank staff accused of taking kickbacks to rig transactions so that their employers would lose money, and "boiler room" operators who allegedly sold worthless investments to unsuspecting members of the public.

The FBI swoop netted employees of one other UK brokerage - Tullet Libery, a subsidiary of Collins Stewart - as well as staff at big name Wall Street banks including JP Morgan Chase and UBS.
The companies themselves are not under investigation.
ICAP's announcement came as it unveiled a 47% increase in first half pre-tax profits, and said it was confident of further growth in the month ahead.

"Market conditions remain good for ICAP, and our overall position is very strong," Mr Spencer said.
ICAP shares closed up 5p at £13.85.

India's new forex law

noreply@blogger.com (jay) — Wed, 17 Oct 2007 05:58:00 +0000

India is replacing a controversial foreign exchange law with a more liberal act so as to encourage outside investment.
The old Foreign Exchange Regulation Act (Fera), which has now been revoked, was disliked by traders and businessmen who frequently criticised what they termed its harsh provisions.

Fera came into existence in 1973, and since then many top industrialists and businessmen fell foul of its provisions.
Suspects accused of violating the law were often detained for questioning, and faced the prospect of a prison sentence if they were found guilty.
Deregulation

But under the new Foreign Exchange Management Act (Fema), which comes into force on Thursday, suspected foreign exchange violations are treated as civil rather than criminal offences.
India is attracting more foreign investmentFinancial experts say Fera was devised and implemented when India had a highly regulated economy, and when foreign investment was either not allowed or regarded with much suspicion.

All that changed in 1993, when India liberalised its economy and started to attract a lot more overseas investment.
Since then there has been a substantial increase in India's foreign exchange reserves.
Foreign trade has increased, tariffs have been curtailed and foreign institutions are allowed far greater access to its stock markets.
The new law, experts say, reflects the ongoing desire of the financial authorities to attract more foreign investment and promote exports.
However the authorities have made clear that although Fera is repealed, it still applies to offences committed before its abolition.

There are nearly 7,000 cases pending, some of which are in an advanced stage of investigation.
One of those being investigated for foreign exchange violations is the son of a former Prime Minister, P V Narasimha Rao