Wednesday, Jun 13, 2007
HUGE ACCIDENT
twnside: As long as they remain unregulated, more crises emerge
The recent tremors in world financial markets were caused by the huge trade involving speculative funds. As long as they remain unregulated, more crises emerge.These recent events have highlighted the prevalence of speculative funds. The “carry trade” alone is estimated to involve US$1 trillion outstanding in currency-to-equity and currency-to-currency swaps, according to Vong.
These funds are volatile and can switch from asset to asset, currency to currency and country to country in response to events and in anticipation of developments that may hit or help their positions and profits. There is a “herd mentality” -- sudden shifts of perception by some market leaders can cause others to move in tandem, thus causing the capital movements to be sharp and large.
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