Derivatives: Darth Vader's Revenge Message Board

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Non-Tech : Derivatives: Darth Vader's Revenge

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To: Worswick who wrote (747)	1/15/1999 9:43:00 AM
From: Henry Volquardsen	Read Replies (1) of 2794

Clark, I believe the counterpartys to the trades being done by speculators in the US and Europe are more likely to be local financial institutions and hedgers. The Brazilian hedge funds mentioned, I presume, more likely to be doing the same sort of thing that their non Brazilian counterparts are doing and therefore would be on the same side of the trade. This is just speculation on my part. FWIW it appears the Brazilians have widened out the bands to levels where they are irrelevant. This is exactly what the Europeans did when the the EMS was in trouble in the early 90s. This means effectively that the currency is floating however they maintain fiction of saying there still are bands so they didn't give in. This could be a very smart move. By taking away a specific target rate that they will defend they deprive the speculators of a specific focus. It will also allow the currency to eventually find the appropriate level. When the Europeans did this the peripherals got trashed but within 18 months they regained everything and it provided a huge economic stimulus. This could be just what is needed. Bovespa well bid at mom.

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