Stage 7 Expanded Reading
In this stage you are expected to broaden your horizon into the topic of the lecture.Please read the following article carefully.
Taking Advantage of Central Bank Interventions
It seems that every country’s central bank these days is involved in some sort of capital control over their currency.Set aside from standard monetary and fiscal strategies,these policies are used to keep domestic denominations under control while keeping a country’s growth stable.One of the most frequented strategies used by policy makers is direct market intervention.Japan’s central bank has used the strategy on more than one occasion.By printing Japanese yen to sell,and buying back U.S.dollars,the Bank of Japan is controlling the value of its exchange rate against the American currency.
But that’s not the only method that is being used,and the Bank of Japan is certainly not the only one intervening in the foreign exchange market.
In South Korea,an export economy similar to Japan’s,the Bank of Korea has also been known to intervene in the foreign exchange markets directly in order to control the rise and fall of its currency,the South Korean won(KRW).But now things have changed,as South Korea’s central bank is looking for additional means of control.An alternative to applying direct intervention in the markets,government officials and the Bank of Korea are beginning to audit banks and larger institutions handling currency market transactions.
Aimed at curbing speculation,the regulations tighten requirements on the country’s banks trading in large currency derivatives,potentially punishing those that are unprofessionally or improperly transacting in the market.
Aiding in the reduction of currency speculation,the strategy increases government scrutiny over market positioning and would support higher requirements on currency positions for foreign currency speculators.All in all,the measure looks to gradually reduce interest in the South Korean won as it becomes more costly to trade currency in the country.
Another way to curb interest and speculation in a country’s currency is through higher foreign investment taxes.
The Brazilian government implemented measures in order to curb its own currency’s speculation – aside from directly selling Brazilian reals and buying U.S.dollars.One such measure is to increase the foreign tax rate on fixed income(or bond)investments.The tax rate would affect foreign investors attempting to take advantage of a stronger BRL/USD exchange rate through large purchases of Brazilian bond investments.Originally at 2%,the tax rate increased to 6% as of October 2010.
Increasing the country’s foreign tax rate is going to make transacting in Brazil more costly for speculators in banks and larger financial institutions abroad—supporting a disinterest in the Brazilian currency and decreasing the amount of“hot money”flowing into the Brazilian economy.
Global central banks sometimes refer to strategies and tools that are already at their disposal.We all know that market speculation accelerates when central banks raise interest rates.During these times,investors look to capture any yield difference between their own currencies and higher yielding currencies.But,in times of massive market speculation,central banks may be forced to actually cut interest rates—hoping to deter any speculation on higher interest rates.
Central banks lowering interest rates are hoping to narrow the yield differential with other economies—making it less attractive for currency speculators attempting to take advantage of a wider yield difference.But,how can foreign exchange traders take advantage of these opportunities?
It's simple.Although central banks apply capital controls on their domestic currencies,these policies tend to do little damage to the overall trend.In the short term,the announcement will temporarily shock markets.But,in the long run,the market ultimately reverts back to its original path.
Announcements of intervention offer great opportunities to initiate positions in the same direction as the recent trend.As forex traders,how can they capitalize on central bank interventions?Let us cite the direct intervention efforts of the Bank of Japan on September 15,2010.
Since May 2010,the USD/JPY exchange rate was moving lower on massive currency speculation.It was during this time that traders bought Japanese yen and sold U.S.dollars on the news that China was investing in Japanese bonds.The momentum helped the Japanese yen appreciate against the U.S.dollar from an exchange rate of about 95 per U.S.dollar to 84 in a matter of three months.
As a result of the yen’s quick appreciation,the Bank of Japan decided to intervene for the first time in six years.At 84,the USD/JPY exchange rate was becoming too much for exporters to handle.The stronger yen was making Japanese products uncompetitive overseas.The announcement caused the USD/JPY currency pair to jump almost 300 pips overnight.
The intervention efforts made by the Bank of Japan drove the currency to test projected resistance dating back to the currency’s short-term top in May.The next two days produced two dojis just below support at 86.00.Dojis signify that momentum in the market following the intervention is exhausted—a sign of resistance failure.
Attempting to enter into the current bearish trend,forex dealers place a short entry at 85.50.This is just enough to confirm a breakdown in the short-term price action while remaining just below the 86.00 support.A corresponding stop is placed about 100-125 pips above their entry price—just enough to keep them in the position.
As expected,the overall bearish USD/JPY market trend continued with the pair dropping to support 80.25 before retracing a bit.This makes the USD/JPY short trade profitable by a maximum of 525 pips—maintaining a risk to reward ratio of almost five to one.
With increased speculation in the market,central banks will continue to apply capital controls in order to control their currency’s exchange rates.These present great opportunities for retail investors and traders to seize entries into longer-term trends—as intervention scenarios rarely work for the policy makers.
(Source:adapted from articles on invesppedia.com)
Task 1:Reading Comprehension Questions
The following questions are asked based on the above article.Please go back to the article and find the answers.
1.Why does a central bank exercise its monetary and fiscal policies?
2.How does the Bank of Japan intervene the foreign exchange market?
3.What measures does the Bank of Korea take to keep the international value of its domestic currency under check?
4.How does the Brazilian government prevent speculation on its national currency?
5.What is“hot money”?
6.What do central banks do to narrow a yield difference between two currencies?
7.How effective are capital controls when exercised by central banks?
8.Why did traders buy the Japanese yen on the news that China was investing in Japanese bonds?
9.What effect does a stronger yen create on Japan?
10.Why do forex dealers place a short entry at 85.50 JPY/USD?
Task 2:Paraphrasing
Explain in English the underlined words and expressions in the context of the above article.
1.It seems that every country’s central bank these days is involved in some sort of capital control over their currency.And one of the most frequented strategies used by policy makers is direct market intervention.
2.An alternative to applying direct intervention in the markets,government officials and the Bank of Korea are beginning to audit banks and larger institutions handling currency market transactions.
3.Aimed at curbing speculation,the regulations tighten requirements on the country’s banks trading in large currency derivatives.
4.Global central banks sometimes refer to strategies and tools that are already at their disposal.
5.During these times,investors look to capture any yield difference between their own currencies and higher yielding currencies.But,in times of massive market speculation,central banks may be forced to actually cut interest rates—hoping to deter any speculation on higher interest rates.
6.Announcements of intervention offer great opportunities to initiate positions in the same direction as the recent trend.
7.The momentum helped the Japanese yen appreciate against the U.S.dollar from an exchange rate of about 95 per U.S.dollar to 84 in a matter of three months.
8.The announcement caused the USD/JPY currency pair to jump almost 300 pips overnight.The intervention efforts made by the Bank of Japan drove the currency to test projected resistance dating back to the currency’s short-term top in May.
9.Dojis signify that momentum in the market following the intervention is exhausted—a sign of resistance failure.
10.Attempting to enter into the current bearish trend,forex dealers place a short entry at 85.50.This is just enough to confirm a breakdown in the short-term price action while remaining just below the 86.00 support.
Task 3:Translation
Read the article again and translate it into Chinese.
阅读文章参考译文：
充分利用中央银行的市场干预
近来，各国中央银行似乎都在对本国货币进行或多或少的资本管制。除了采用传统的货币政策和财政政策，央行也使用资本管制，旨在稳定经济增长的同时，保持本国币值可控。决策者使用最常见的策略之一，就是对市场进行直接干预。日本央行经常采用这一做法，通过印制日元钞票，在卖出日元的同时买入美元，从而操控日元兑美元的汇率。
然而，资本管制并非唯一的手段，日本也并非唯一干预外汇市场的国家。
与日本相似，韩国也是一个出口导向型的经济体。韩国央行为了控制韩元的升贬幅度，也经常对外汇市场进行直接干预。然而，目前情况有所变化，韩国央行正在寻找新的货币管制手段。韩国的政府官员与央行，正在着手审查银行以及从事外汇市场交易的大型机构，以此来替代直接干预外汇市场。
为了遏制投机活动，针对从事大额外汇衍生品交易的银行，韩国央行制定了严厉的条例，惩戒银行市场交易违规行为。
为了减少外汇投机交易，韩国政府加强了对市场头寸的监管，同时对外汇投机者的外币头寸提出了更高的要求。总之，在韩国进行外汇交易，成本会越来越高，因此，这项措施有可能逐渐打退人们对韩元的投机兴趣。
抑制对本国货币投机兴趣的另一种手段，就是提高外国投资税。
巴西政府除了直接卖里尔买美元之外，还实施了多个措施来管控投机本国货币的行为。其中之一就是，加大提高对固定收益（或债券）投资的外国税率。外国投资者通过大量购买巴西债券，然后按较高的里尔兑美元的汇率换汇，从中渔利，现在这个措施对他们产生了影响。外国税率起初是2%，截至2010年10月，已经跃升至6%。
提高外国投资税，将会造成外国银行及大型金融机构投机者在巴西交易成本的上升，因此有助于降低对巴西货币的投机兴趣，同时还可以减少“热钱”流入巴西经济体。
全球各国的央行时不时也会采用一些现有的策略和工具。众所周知，每当央行加息，市场投机活动就会活跃。在此期间，投资者会去捕捉在高收益货币与本币之间的价差。但是，当市场充斥着大量投机时，央行实际上就会被迫降息，旨在阻止投机套利。
央行减息是为了缩小与其他经济体的利差，减少外汇投机者炒汇套利。但是，外汇交易者又如何利用这些机会来进行套利呢？
答案很简单。尽管央行对本国货币进行了资本管制，但是，这些措施对于市场总体趋势的影响微不足道。短期来看，政策的发布会暂时震慑市场，但长期来看，市场终究会走回原来的轨道。
干预措施的公布给建仓提供大好机会，正如目前市场走势一样。作为外汇交易者，应该如何利用央行的干预来获利呢？让我们举例说明，以2010年9月15号日本央行对市场直接干预为例。
自2010年5月起，由于大规模外汇投机，美元兑日元的汇率持续走低。就在这期间，受中国购买日本国债消息的影响，交易者买日元卖美元。日元走牛使得日元兑美元持续升值，仅在三个月内，汇率就从95日元/美元飙升至84日元。
由于日元升值过快，日本银行六年以来首次决定干预外汇市场。1美元兑84日元的汇率让日本出口商不堪重负，强势日元削弱了日本商品的出口竞争力。日本央行公布干预政策，一夜之间使得美元兑日元的汇率大幅攀升约300个基点。
日元汇率在5月份达到短期峰值，日本央行实施的干预措施，让日元承受了市场阻力测试。接下来连续两天出现“十字星”，略低于支撑点，达到86。十字星表明，继干预政策之后的市场跟风势头已消耗殆尽，意味着阻力失败。
外汇交易者试图趁目前的熊市抄底，在85.50点位上做空。这只能证明当汇率维持在略低于86.00支撑点时，短线操作可以频频得手。只要在高于进场价100至125个基点之间设置止损，就可以在市场上继续操作。
正如所料，美元兑日元汇率下挫探至80.25，之后略有反弹，但是市场走熊的总体趋势仍会延续。这使得美元兑日元的卖空交易利润可观，高达525个基点，风险收益比维持在5：1。
随着市场投机活动日益增多，央行为了稳定汇率，会继续采用资本管制措施。这给散户和交易者提供了长期操作的大好机会，因为市场干预基本上不遂当权者所愿。