As we know from earlier posts, economic theory approaches the issue of exchange rates by trying to find a theoretical equilibrium level, against which one can measure over- or undervaluation relative to the actual exchange rate. Such theory relies on a number of important premises with regard to the information that might affect exchange rates: [...]
Archive of entries posted on 27th June 2009
CURRENCIES ARE DIFFERENT
The first thing to say about the currency market is that it possesses and obeys a different set of dynamics to other financial markets. Unlike in the case of equity or fixed income markets, the vast majority of currency market practitioners are speculators of one sort or another. Global merchandise trade going through the currency [...]