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Around the World

Some items that caught the attention of Squawkbox’s editorial team in the last week…

Nice to see that not everyone in the US is fixated upon the declining housing market. China’s exchange rate policy appears to be back on the agenda in Washington DC after the failure (in some eyes) of the US Congress to take a firmer stand over China’s “manipulation” of the renminbi exchange rate.

A lobby group, grandly entitled the China Currency Coalition called last week for action against the “substantial undervaluation” of China’s renminbi, stating that it “undermines the US economy and our national security”. Timing is everything – the renminbi just suffered its biggest weekly loss since the peg was scrapped…

Zimbabwe last week knocked 10 zeroes off its currency, a move which automatically turned a Z$10 billion note into a Z$1 note…but one still gets the feeling that 13 million Zimbabweans will go “Yours” at the first opportunity…

A busy week for Phillip Bennett, former CEO of Refco who was sentenced to 16 years’ imprisonment for fraud and conspiracy surrounding the collapse of the financial services firm. First it was revealed he is to appeal his sentence and then that he had reached an unspecified agreement with the Securities & Exchange Commission over the latter’s civil case.

Given how the UK’s FSA are looking to get tough on insider dealing (among other activities) there could be some very nervous interviewees among the eight people arrested by British police last week investigating insider trading…

Even those at the top get it wrong…last week the United Nations revealed that it had lost up to 25% of its funds spent in Burma (as part of its ongoing relief effort) in foreign exchange losses. John Holmes, humanitarian chief at the UN, estimated the losses, due to a widening in the spread between the dollar and local foreign exchange certificates from par to 20 or 25%, at $10 million. He also stressed the local government had not benefited from the move; rather it was the local currency traders. Good bonus season expected in Burma clearly…

Interesting time for those who believe the retail FX market is becoming influential in terms of moving exchange rates. Research from BNP Paribas last week suggested that while institutional traders and hedgers were selling the New Zealand dollar, Japanese retail investors continue to buy. Unless there is a change in the economic conditions facing New Zealand it will be interesting to see who has the longer term “clout”, the big institutions or the mass of Japanese retail investors…

Foreign exchange hedging disasters are often under the spotlight but in Australia, a rare case of a foreign exchange hedge actually saving a corporation from bankruptcy has occurred.

Rubicon Japan Trust (RJT), a property investment company listed on the Australian Stock Exchange, says the dismantling of its foreign exchange hedging policy has realised AUD 45.9 million in cash to repay its bankers, enabling the firm to stave off a looming breach of bank covenants.

FX gains from the hedge amounted to AUD 19.9 million while AUD 26 million in cash reserves, used as collateral to support the foreign exchange hedging requirements were released. Earlier this year, RJT was forced by its banker, the National Australia Bank (NAB), to raise its cash collateral to fund margin calls on the AUD/JPY hedge (Squawkbox, 24 March 24)

Of course, this now means that the company, which invests in Japanese commercial property, is now exposed to currency risks between its Japanese assets and Australian dollar-based returns for its Australian investors… 

Things we didn’t know: There are at least 500 banks in Russia. How do we know this? Moscow-based JSC Izhcombank has deployed a private-labelled version of Trader Development’s Avalon FX Pro 4.1 trading platform to provide to its clients for foreign exchange trading. Trader Development, a wholly owned subsidiary of Avalon Capital Holdings Corp., says JSC Izhcombank “was recently ranked 293 of Russia Top 500 most profitable banks for the first quarter of 2008”…  We wonder how many loss making banks there are?

Profit & Loss

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