A Yen for yen

Michelle — Thu, 30 Oct 2008 02:17:37 +0000

Although today’s biggest headlines were in the Middle East and South Asia, as I was scrolling through the headlines about Japan I couldn’t help but notice this lead: Japanese Yen Has Huge One-Day Decline; Helps Market Rally.

Really now. When was the last time you heard a market rally over currency devaluation? Unfortunately for the yen, it was the victim of a financial practice known as the carry trade. In (relatively) plain English this means borrowing in a currency offering low interest and investing in high-interest currencies — or, in other words, taking advantage of different interest rates in different markets to make money.

Because the Bank of Japan (BOJ) has kept Japanese interest rates so low, the yen has been on the borrowing end of the carry trade, and traders have used this yen to invest in developing markets around the world. Unfortunately for Japan, with the global financial system in turmoil and developing markets looking increasingly risky, investors are pulling out of these investments and are converting assets in other currencies back into yen. Demand for yen goes up, and the value of the yen rises against everything, even the dollar (one of the other currencies currently on the rise).

Or something like that. The end result of the whole mess is that Japanese exports are more expensive on foreign markets (due to the strong yen), and Japanese manufacturers are freaking out.

Banking Basics

Michelle — Mon, 13 Oct 2008 15:11:33 +0000

One of the upsides of the financial crisis (if there are in fact any good points) is that it’s providing a good opportunity for people to learn about economic concepts like interbank loans and credit default swaps.

Need some data? Head on over to amazon.com. The first economic-related book to come up in the bestsellers list is The Snowball: Warren Buffett and the Business of Life at #8. You don’t have to scroll down far to see the next: The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means by George Soros at #12. Thomas Friedman’s new book, Hot, Flat, and Crowded: Why We Need a Green Revolution–and How It Can Renew America is right below at #13. Still within the top 20, The Little Book of Bull Moves in Bear Markets: How to Keep Your Portfolio Up When the Market is Down (Little Books. Big Profits) comes in at #19.

If you’re an audio learner instead of a visual learner, then I’d suggest Marketplace from American Public Media. Here’s the link to Marketplace’s complete coverage of the financial crisis.

The Big Persimmon » financial crisis

A Yen for yen

Banking Basics