| Soros on the cheap
BETTING on currencies may have helped George Soros get rich, but for most people it is a mug's game. Forecasters often get the direction of foreign-exchange movements wrong, never mind their magnitude. But there is evidence that investing in currencies can add value to a portfolio, even though it may seem to be a zero-sum game (because as one currency rises, another must fall). The chance of earning an extra return arises thanks to the presence in the market of what economists might call "non-profit-maximising" participants—in other words, people with motives other than the best currency rate. Tourists are an obvious example: they tend to buy and sell during (or just before) their holidays and have to take exchange rates as they find them. Portfolio investors usually buy foreign assets because they like an individual security, not on the basis of expected currency movements.
Foreign exchange market braces for rise of algorithms
CHICAGO (Reuters) - Global investors using complex, computer-driven models will increasingly pump up the foreign exchange market's volume, creating both opportunities and headaches for market makers. In algorithmic trading, hyper-fast computer programs based on mathematical models essentially make split-second financial decisions to find optimal prices. With hedge funds and other high-frequency investors gravitating to so-called algos, the programs are already helping to keep trading volume robust even as volatility in the currency markets generally declines, according to panelists at an industry conference sponsored by FX Week magazine this week. "The barriers to entering this market have decreased, yet how does one on the buy side or the sell side manage liquidity when it is spread across so many different venues," said Darren Jer, regional FX sales manager with ICAP.
BOT watching banks' forex trading
The Bank of Thailand (BOT) has urged Thai banks to adjust their net foreign exchange position at the end of each day, and foreign banks within the following day, a source in the financial community said yesterday. Given the rapid strengthening of the baht, the central bank is taking a close look at the foreign currency trading of commercial banks by asking them to report their net foreign positions on a daily basis. Deputy BOT Governor Atchana Waiquamdee yesterday said it wanted to know whether the banks' currency trading was normal in relation to export transactions. Some banks have been blamed for being involving in baht speculation by selling US dollars into the market, putting additional pressure on the baht initially spurred by exporters. Exporters have largely sold off their dollar incomes amid a concern the BOT would revoke the capital reserve requirement.
Deutsche Says Use Brazil Real Options in Narrow Trade (Update1)
April 3 (Bloomberg) -- The Brazilian real should withstand daily central bank dollar purchases and hold steady over the next month near a recent six-year high, according to Deutsche Bank AG, Germany's biggest bank. Deutsche advises investors to buy and sell options in a trade that will profit if the currency is little changed or trades within a narrow range. ``We believe the central bank will probably continue to increase the size of its interventions in order to maintain the currency near current levels,'' said Rogerio Oliveira, emerging markets strategist at Deutsche Bank in New York. The central bank has sought to restrain appreciation to aid export sales. The central bank has bought dollars daily in the currency market since July 3. The central bank's foreign reserves have nearly doubled to $110 billion, compared with $63 billion on July 3.
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