Forex Reader

It has been noticed that the responsibility of managing forex transactions mainly fall on the shoulders of banking staff. The State Bank of Vietnam has taken some initiatives on this regard. Forty central bank officials are attending a training program in foreign exchange management organized and financed by a HCM City-based Taiwanese non-profit agency. The three-day program was launched in HCM City. It is being handled by Professor Sanrong Lii of Soochow University who is also president of the Asia Financial Network and special consultant of Taiwan’s Central Trading and Development.

To know more about forex trading in Vietnam, read my previous post titled “Vietnam Bank allowed to Set Own Forex Rates“.

The training aimed at improving the skills of the State Bank of Vietnam officers in handling forex policy and financial management issues in the context of increased competition and global integration. Several important topics such as capital market, international commodities, exchange rates and forex transactions will be discussed at the program.

A boom in foreign currency lending is a growing risk to banks and economies in central and south-east Europe. The Standard & Poor report gave its caution to Hungary for its combination of high forex lending particularly to unhedged consumers and small businesses high exchange rate volatility and a looming economic slowdown. The agency said that no ratings downgrades were imminent for any of the region’s banks due to their foreign currency loan exposure.

The report also warned that any strong currency depreciation or an economic recession could bring about a more severe scenario. Hungary has gone through economic recession over the past few years. Recently, it has introduced a budget austerity program to restore fiscal order. Besides Hungary, Romania, Croatia and Poland have been identified as vulnerable against foreign currency lending.

Read my previous post titled “MNCs Found Guilty of Violating Forex Standards” to know about recent activities associated with forex.

We all know that the forex market is the most leveraged financial market in the world. The leverage increases significantly as per the market activities. The high degree of leverage can make forex either extremely lucrative or dangerous depending on which side of the trade you are on. In foreign exchange, retail traders can literally double their accounts overnight or lose it all in a matter of hours if they employ the full margin at their disposal. Read my previous post titled “Benefits of Forex Trading“.

Most market players believe that stops are critical to long-term survival. The notion of “waiting it out” simply does not exist for most forex traders. Trading without stops in the currency market means that the trader will inevitably face forced liquidation in the form of a margin call. With the exception of a few long-term investors who may trade on a cash basis, a large number of forex market participants are believed to be speculators. They do not have the luxury of nursing a losing trade for too long because their positions are highly leveraged.

The US dollar was lower in the afternoon trading session in Singapore. It succumbed to accelerated gains in the euro, which hit a new record high against the yen earlier. The dollar was at 117.01 yen, down from 117.12 yen in Tokyo trading session. The euro was at 1.2813 USD, up from 1.2775 USD in Tokyo trading session. The euro has registered a sharp increase by reaching a new record high of 149.90 yen. In the afternoon, the euro’s gains against the yen pushed it higher against the dollar and helped keep the dollar subdued against the yen. The last meeting of the Federal Open Market Committee could affect the US dollar further.

Read my previous post titled “The US Federal Reserve Loosened Money Control” for more information about the guidelines laid down by the US Federal Reserve.

The euro was little changed, as investors did not panic over the slowdown in money supply in the euro zone. The forex trading was slow because of the public holiday in the UK. The data is not expected to change the course of interest rates in the euro zone over the rest of the year. The European Central Bank is scheduled to decide on interest rates, but is expected to hold fire after having raised the benchmark rate from 2 to 3 pct since December 2005. The rate-setting meeting should prop up the euro. However, it will take additional news from the US for the single currency to sustain bigger gains on the dollar.

Read our previous post titled “Leverage Trading and Low Transaction Costs” to know more about forex trading.

Banks in several central and south-eastern European countries are leaving themselves wide open to risk because of their foreign currency lending policies, says a report by credit rating agency Standard & Poor’s (S&P). Small businesses and individuals across Hungary, Romania, Croatia, Poland, Bulgaria, Slovenia, Slovakia, and the Czech Republic are obtaining more credit in foreign currency.

This situation poses a threat to the economies of these countries for various reasons:

• Repayment is through monthly installments in the local currency, which means that the borrower is at the mercy of the fluctuating rate.
• A severe depreciation of the domestic currency or an economic recession could lead to a drastic economic situation.
• Individuals and small business do not have foreign exchange reserves or revenues that ensure that the loans will be paid back.

Hungary and Romania lead the list of countries that will be severely affected if an adverse scenario plays out, according to S&P which tags both nations with the high-risk label. Croatia and Poland follow with the medium-risk label, while Slovakia, the Czech Republic, Slovenia and Bulgaria are among the low-risk countries.

S&P has more startling statistics in its bag - Foreign currency loans account for more than 50 percent of all outstanding credits in Hungary (51 percent), Romania (54 percent), Bulgaria (52 percent) and Croatia (78 percent). Hungary, Poland and Romania are more at risk because of the high percentage of foreign currency loans lent to individuals.

Forecasts relating to China’s foreign exchange holdings are not painting a rosy picture as far as the Asian country’s macro-economy is concerned, according to Professor Zhang Shuguang of the independent Unirule Institute of Economics in Beijing. The academician has predicted that the nation’s forex reserves will touch $2.49 trillion by the year 2010, as reported by Shanghai Securities News.

China holds the world’s highest foreign exchange reserves. The figure stood at $941.1 billion at the end of June this year.

Banks in India can now offer their customers Internet-based foreign exchange services, according to a notification from the country’s central bank, the Reserve Bank of India (RBI). Such services are only allowed for reporting and initiation of forex-related transactions, said the RBI notice. Actual trade transactions will only be allowed after physical documents are verified. The Hindu Businessline reports:

"With the click of a button, corporate clients will now be able to book deals with respect to their USD/Euro or GBP/Japanese Yen exposures. This was only possible until now for the USD/Indian Rupee exposures," said the treasury head at a private bank.

Any change brings with it some form of disorder and confusion; when the switch being made relates to a national currency, official machinery is often not capable of dealing with the bedlam in a systematic manner.

Zimbabwe is facing the effects of its change in currency with traders and businesses refusing to accept the old bearer checks even before the deadline. In spite of Reserve Bank Governor Gideon Gono’s warning that action would be taken against people if they do not accept old bearer checks, the country is in turmoil with even the National Railways of Zimbabwe (NRZ) accepting only new checks from August 19.

The oft-repeated excuse heard around Zimbabwe’s markets and trading centers for not accepting the old bearer checks is the fear that the Reserve Bank of Zimbabwe (RBZ) itself might not change them into new ones. Some gasoline outlets and shops held out for new bearer checks as means for them to make payments.

The fact that a few arrests were effected following refusals to accept old bearer checks had no effect on the rest of the crowd; they were demanding that people pay them in the new currency, or do without.

Meanwhile, banks were busy exchanging old bearer checks for new ones, which meant that those who turned up to conduct ordinary transactions had to leave empty-handed and disappointed. The RBZ’s Real Time Gross Settlement (RTGS), an instant money transfer system, also became a casualty to the change for a few hours. With banks strapped for cash, armored trucks were sent with money to remote areas.

Rural areas of the country had no inkling of the currency chaos the country was facing. A shopper was almost beaten up for trying to use the new currency. A side-effect of the lack of proper communication to the masses! The confusion does not do anything to redeem Zimbabwe’s government in the eyes of its detractors who criticised the currency revamping as a cosmetic exercise that would not do the nation any real good.

China is slowly responding to the West’s demand to let its currency appreciate, the results of which were seen in the yuan’s strongest ever showing against the US dollar. Following the central bank’s hike in lending rates by 27 basis points, the yuan rose to 7.9642 against the dollar. Forbes reports:

On Jan 4, China launched an OTC system for the interbank foreign exchange market, allowing market participants to make currency trades on credit without the intervention of a third party. Previously it relied exclusively on an automatic price-matching system, overseen by a centralized government trading center, known as the exchange-traded market.