Forex Reader

– By Pushpa Sathish, Staff Writer

Individual and institutional investors overseas are eyeing India’s largest and oldest exchange, the  Bombay Stock Exchange (BSE), and biding their time to invest in the bourse even as the Indian government is drafting a plan to open the country’s stock exchanges to FDIs (foreign direct investors) and FIIs (foreign institutional investors). According to word from a senior official in the finance ministry, the policy is waiting in the wings for approval from the country’s central bank, the Reserve Bank of India (RBI) and the market regulator, Securities and Exchange Board of India (SEBI), as per the provisions outlined in the Foreign Exchange and Management Act (FEMA).

The maximum foreign investment allowed will be 49 percent, divided between individuals and institutions as either 25 percent for FDIs and 24 percent for FIIs, or 26 percent for FDIs and 23 for FIIs. Among those interested in a stake in the Indian pie are the NYSE, NASDAQ, the Australian Stock Exchange, and FIIs such as Goldman Sachs, Nomura, Fidelity, and the Singaprean private equity investor Temasek.

– By Pushpa Sathish, Staff Writer

The stocks of two countries on opposite ends of the globe fell, with two different effects on each one’s currency. While Brazil’s real weakened following the fall of stocks, the Japanese yen appreciated even as stocks of leading organizations like Honda Motor Co., Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Sony Corp. fell.

Significant dollar purchases by the country’s central bank and large remittances of the greenback overseas by investors have led to the fall of the real. It’s a different tale on the Asian archipelago – the yen rose following the Japanese government’s move to lower its evaluation of the nation’s economy for the first time in two years.

Amidst speculation that a weakening US economy will drive the Federal Reserve to slash interest rates, the yen increased to 116.04 against the dollar on November 25, while the real dropped to 2.170.

Will the dollar be replaced as the world’s top currency? Speculation is rife - China is being asked to diversify its dollar holdings because of the significant drop in the greenback’s value, the share of currency reserves held in dollars is down to 65.4 percent as of June 2006 from 71 percent in December 2000, and Sultan Bin Nasser al-Suwaidi, the governor of the UAE’s central bank, is predicting that the euro will take the place of the dollar by the year 2015.

But Richard Fisher, the president of the Federal Reserve Bank of Dallas, begs to differ and pooh-poohs such reports. The growth rate of the United States and the country’s success in controlling inflation will see the dollar stay the currency of international trade, he said at a banking conference on the euro in Frankfurt, Germany. Fisher is of the opinion that growth is more likely in the United States than in Europe, so central banks will not be in any hurry to replace those dollars with euros. 

– By Pushpa Sathish, Staff Writer

China’s large foreign exchange reserves has been the subject of numerous discussions, debates, and theories. Of late, economists and analysts have been urging the country’s central bank to diversify its forex holdings and minimize the risk of a significant drop in the US dollar. We’ll never know if the People’s Bank of China succumbed to such pressure or if it acted on its own strength, but the bank confirmed recently that it had purchased a large amount of Japanese yen.

With intense international speculation that increasing interest rates and a continuous period of economic expansion (the longest since the Second World War) will push the yen upwards, the island nation’s currency is a hot favorite and is being snapped up by Russia, Switzerland and New Zealand.

As a direct result of all this frenetic buying of the yen, the Japanese currency has risen further. The world’s second-largest economy is growing twice as fast as expected, leaving the yen with its highest gain in a week on November 14. A survey of 16 economists revealed that 10 of them are of the opinion that the Bank of Japan will raise interest rates again before the first quarter of 2007, with 4 of them saying that the hike could come as early as December this year.

– By Pushpa Sathish, Staff Writer

Japan’s foreign exchange reserves may have risen to a record $885.55 billion for the eighth consecutive month (October), but it still has a long way to go before it catches up with China and regains its place as the leading holder of foreign exchange. China has raced ahead to $987.9 billion (or is it $1 trillion) since it overtook Japan in the rankings earlier this year.

Countries that are involved in trade deals with Japan have the same cause for concern as they do when dealing with China – the fear that the authorities will interfere in the currency market and stop any rise in the value of the yen. Japan’s forex reserves are of particular interest to, and are monitored by the global bond and currency markets.  Forbes reports:

At the end of last month, Japan’s foreign currency reserves stood at $865.58 billion, IMF reserves at $2.05 billion, SDRs at $2.73 billion, gold at $14.85 billion, and other foreign currency assets of $334 million.

– By Pushpa Sathish, Staff Writer

Has China’s foreign exchange reserves crossed the $1 trillion mark or not? That is the trillion-dollar question! While a news report on the state television channel CCTV stated that the Asian country’s forex holdings touched the $1 trillion level, spokeswomen for both the currency regulator, the State Administrator of Foreign Exchange (SAFE), and the country’s central bank, The People’s Bank of China, categorically denied that the report was true.

What’s confusing in this scenario is that the TV report cited figures from SAFE to back its claim, but did not say exactly when the reserves crossed the magic mark. China is already in the eye of a currency storm for not allowing its currency to appreciate; other countries trading with China contend that the yuan is being artificially devalued.

Are fears of more stringent calls to devalue the nation’s currency keeping SAFE and the central bank from admitting that the reserves have risen as stated? China’s forex holdings are growing at the rapid rate of $20 billion a month, thanks to massive inflows from foreign direct investment, speculation on the appreciation of the yuan, and an increasing trade surplus.

The latest report dated October 13 from the central bank stated that China’s foreign exchange reserves stood at $987.9 billion at the end of September. Anyone who can add a bit will certainly be speculating that the reserves have indeed crossed the $1 trillion mark!

– By Pushpa Sathish, Staff Writer

China should protect itself from a strong depreciation in the dollar by using its hoard of foreign reserves to invest in strategic resources outside the country, according to Xia Bin, a researcher with the Development Research Center under the State Council. China has the world’s largest store of foreign reserves; the figure stood at $987.9 billion at the end of September.

Xia estimates that this amount is $300 billion in excess, and that the country’s finance ministry should use this amount to buy oil and medical equipment from abroad. The dollars will have to be purchased from the People’s Bank of China, the nation’s central bank, as forex reserves are deemed an asset on the bank’s balance sheet.

The researcher went so far as to say that the central bank and the State Administration of Foreign Exchange (SAFE) were not suited to manage China’s foreign reserves as they focused more on macroeconomic policies rather than investment decisions. He suggested that the Central Huijin Investment Corp., an investment arm under SAFE, be changed into an independent agency and given responsibility for the country’s surplus forex reserves.

– By Pushpa Sathish, Staff Writer

Since foreign exchange levels are decided according to the strength of a nation’s economy, Japan has no need to fear a weakening of the yen, said Japan’s vice finance minister and leading currency bureaucrat, Hiroshi Watanabe. Japan, which is the second largest economy in the world, will grow at the rate of 2 percent later this or early next year, with its economy on a convergence path with that of the United States and Europe. The minister pooh-poohed former finance minister Sadakazu Tanigaki’s statement that the euro-yen exchange level was volatile as being outdated.