Currency Crisis

airborne · 1 Currency Crisis Mon Feb 06, 2012 10:30 pm

airborne

Equity Analytic

Posts : 20
Equity Stars : 4569
Reputation : 3
Join date : 2011-11-27

Hello Gents..
Am new to the forum. Was wondering out aloud, Isn't anyone worried about a currency crisis? Foreigners seem to be, and are selling stocks and running out with their cash..comments appreciated. Thanks.

Tiger · 2 Re: Currency Crisis Mon Feb 06, 2012 11:45 pm

Tiger

Assistant Vice President - Equity Analytics

Posts : 700
Equity Stars : 5517
Reputation : 85
Join date : 2011-06-03
Location : Dubai

Re: Buy and Hold strategy
by Tiger on Wed Jan 11, 2012 3:06 pm

I am 95% invested from my investment a/c in SL. Unable to invest more in foreign currency until exchange rate policy is clear.

sapumal · 3 Re: Currency Crisis Tue Feb 07, 2012 12:33 am

sapumal

Vice President - Equity Analytics

Posts : 1105
Equity Stars : 6523
Reputation : 65
Join date : 2010-07-30

I don't think SL have any currency problem now. For years we had been in 110. It is almost unlike to a country like us. Countries like India and China continuously devalue currency.
This year it went to 113. It was a bad one. If we devalue slowly it won't be a problem. But when we adjust it for years over night it could be bad.

With high trade deficit it has to adjust or use the foreign reserve to protect rupee. With IMF loan we will receive money. We have to use them wisely to create liquidity.
Buy JKH or SPEN from that money. Cash liquidity will be vanished. LOL

airborne · 4 Re: Currency Crisis Tue Feb 07, 2012 1:56 pm

airborne

Equity Analytic

Posts : 20
Equity Stars : 4569
Reputation : 3
Join date : 2011-11-27

Thanks for the replies.
Wondering again. If the central bank uses almost $1 billion to prop up the rupee in January 12. Then what happens six months down the line, when our reserves have been depleted...
We also cannot take the IMF loan to use it to defend the rupee.

K.Haputantri · 5 Re: Currency Crisis Tue Feb 07, 2012 2:09 pm

K.Haputantri

Co-Admin

Posts : 2274
Equity Stars : 8872
Reputation : 390
Join date : 2011-12-06
Age : 74
Location : Moratuwa

I think, foreigners are waiting till policy on currency is clear & stable. They are uneasy when cb intervenes on the currency market. What they want stability without interventions. Then only they can plan out their investment strategy. They mean business friend.

greedy · 6 Re: Currency Crisis Tue Feb 07, 2012 2:36 pm

greedy

Manager - Equity Analytics

Posts : 280
Equity Stars : 4991
Reputation : 28
Join date : 2011-07-21

CB is holding LKR from depreciating. The currency is overvalued least by 20%. Foreign investors are worried if LKR starts to depreciate once they invested! With last devaluation through budget, foreign investors may have lost 3% over night. They may be waiting to see how far CB can hold LKR at this level.

CB tried to control inflation through holding LKR from depreciation. I guess this sometimes may lead to a disaster.

sapumal · 7 Re: Currency Crisis Tue Feb 07, 2012 4:01 pm

sapumal

Vice President - Equity Analytics

Posts : 1105
Equity Stars : 6523
Reputation : 65
Join date : 2010-07-30

Best solution might be introduce rules to promote specific exports (hotels , IT , fisheries, ..) and demotivate specific imports (vehicle tires, wheat, bicycles, ... ) rather than adjusting rupee.
Investors won't take initiatives in some industries ex: tire
Government has to identify the investors and deal (no commission) with them to start it here.

airborne · 8 Re: Currency Crisis Wed Feb 08, 2012 1:55 pm

airborne

Equity Analytic

Posts : 20
Equity Stars : 4569
Reputation : 3
Join date : 2011-11-27

Thanks for the input..as I read in another posting that a devaluation seems imminent.
Foreign outflow may be stemmed in the short term, and we might get a surprising uptick..once the devaluation occurs. What do you gents think?

Kosinna · 9 Re: Currency Crisis Wed Feb 08, 2012 7:43 pm

Kosinna

Equity Analytic

Posts : 43
Equity Stars : 4548
Reputation : 0
Join date : 2012-01-13
Location : USA

I think mico-management of exchange rate is neither effective nor efficient.

airborne · 10 Re: Currency Crisis Thu Feb 09, 2012 11:14 am

airborne

Equity Analytic

Posts : 20
Equity Stars : 4569
Reputation : 3
Join date : 2011-11-27

Kosinna...
Most Central Banks seem to be micromanaging their economies if not their currencies. How would you like the currency to be managed?

Kosinna · 11 Re: Currency Crisis Fri Feb 10, 2012 8:32 pm

Kosinna

Equity Analytic

Posts : 43
Equity Stars : 4548
Reputation : 0
Join date : 2012-01-13
Location : USA

airborne wrote:Kosinna...
Most Central Banks seem to be micromanaging their economies if not their currencies. How would you like the currency to be managed?

True. Govts all over the world are somewhat managing economies for real economic reasons and sometimes for the political reason. For example Japan occasionally pumps currencies to forex market to devalue YEN because they want to stop appreciating YEN against $ and Euro, pounds because that will impact export and employment in Japan. China keep their Yuan devalued against $ and Euro US is complaining this last 10 years.
But I don’t understand why CB decide sell $ from countries reserve to defend Rs. It is bad for the export and import substitute industries, bad for the Foreign Direct Investments (long term) and employment but good for against inflation and political unrest. The bottom line is SL will be accumulating foreign debt at a faster rate and we will be subject to political influence from other countries when we can not borrow from the commercial mkt. Check the Greek scenario. CB’s policy is shot sighted.
I prefer free float of the currency with certain CB’s intervention such as settling OIL import bill. Also, this is not sufficient.
This is my philosophy of Govt role in economies:
Perfect competitive (free) markets are the most efficient market but in real world you don’t see this. So the govt role is should forces implementing/minimizing the market failures.
1. Monopoly
2. Asymmetric Information
3. Moral Hazards
4. Etc …..
Therefore, Govt policies and intervention should focus on:
1. Government policies to encourage FDI (not loan or borrowing)
2. Better labor policy – i.e. Investor/employer favorable
3. Reducing Government waste and corruption and manage the fiscal deficit
4. Law and order and creating level playing market place