Mr Jones is a high net worth individual who has a margin account with ABC International. Hecalls up and speaks to his favourite salesperson. After the customary pleasantries, Mr Jonesasks for a dealing price for sterling in ‘half a pound’. The salesperson obtains the price fromthe trader and communicates it to Mr Jones for consideration. It is likely that Mr Jones has ageneral idea of where the price is from his Internet screen. If Mr Jones accepts the price, thesalesperson would immediately inform the trader, possibly via a hand signal. It is then up tothe trader what happens with that position. The dealing conversation could be:Mr Jones: A dealing price for half a pound please.Corporate dealer: Sure, price for half a pound coming – Charlie (trader), cable in half?Charlie: Who for?Corporate dealer: Old Mr Jones.Charlie: What’s he doing?Corporate dealer: How do I know – just give me the price.Charlie: 30/40.Corporate dealer: Cable in half a pound is 1.4330/40.Mr Jones: Hmm, I was hoping for a better spread.Corporate dealer: Your risk, let me try for you, you know it is only in half a pound but letme ask.Charlie: What’s he doing – trading or not?Corporate dealer: He is looking for a better spread.Charlie: What, in half a pound? You decide – he is your client.Corporate dealer: I am 1.4332/37 now.Mr Jones: Hmmm . . . well . . .Corporate dealer: Mr Jones, your risk again.Mr Jones: Ok, how now please?Corporate dealer: Charlie – how are you left on that half pound for Mr Jones?Charlie: Has he still not dealt – do what you like within 30/40 and let me know this side ofChristmas.Corporate dealer: 1.4333/38.Mr Jones: Ok, I sell.Corporate dealer: Ok to conﬁrm you sell half a million pounds and buy dollars at 1.4333for value spot.Mr Jones: Agreed and thanks.
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20.3 A MATTER OF SECONDSThe process of the above two examples happens in only one or two seconds as markets movevery rapidly. The salesperson and the trader can always change the price as long as the clienthas not ﬁrmly accepted the last quote made. Before making a decision to actually trade, itis not unusual for a client to shop around for quotes from various market makers in order toobtain the best deal. Sometimes, clients will ask for quotes knowing that they are not ready toactually trade but just want to check where the market is.
20.4 INFORMATION NEEDEDHence, the following information is needed when asking for a quote:
r the two currencies being traded (for example, $/jpy)r the value date of the trade (for example, spot)r the amount (for example, $1 million).
If possible, the trader will try to know what side of the price you are, or at best guess. Alwaysask for a two-way quote.
20.5 FORWARD ASKINGQuotation of prices and dealing in the forward market are rather different from spot dealing.Theoretically, it is possible for the forward price of a currency to equal its spot price. However,because the interest rate that can be earned by holding different currencies usually varies, inpractice the forward price is normally higher or lower than the spot rate. For convenience,forward prices are not quoted outright and instead dealers quote the differential (the premiumor discount). The main beneﬁt of quoting in this way is that the forward rates are subject tomuch less ﬂuctuation than spot rates, so quoting in this way requires fewer changes to theprice. For example, consider the following conversation:Salesperson: Hello Mr Smith, how can I help you?Mr Smith: Hi Susan, you know about 30 minutes ago I asked you for a 3-month forward pricein dollar yen – is it still the same?Salesperson: Let me just check for you, the spot has of course moved, but I am sure nothing haschangedontheforwardpips. Is it for the same amount you asked for before – 1 million dollars?Mr Smith: Yes it is.Salesperson: Yes, it is still the same. The price is 62 at 61.Mr Smith: Ok, so at 62 I buy and sell 1 million dollars please.Salesperson: Ok, so at 62 pips you buy and sell 1 million dollars and you sell and buy the yen;rates are 121.62 and 121.00, value dates being 23 March against 23 June. Anything else Ican do for you?Mr Smith: No thanks, all agreed and thanks, bye.
CONCLUDING REMARKSIn all cases, be extremely clear in the details of a trade or the instructions given, in order toavoid costly errors at a later stage. It is all too easy to mis-hear a quote ‘for a half’ and thinkit is a quote in ‘four and a half’.
21Foreign Exchange Market OrdersThe previous chapter described the most frequent methods of foreign exchange dealings.However, a client may leave orders with the bank or broker, and there are generally four typesof orders.
21.1 MARKET ORDERSFirst, there are market orders, which enables the client to execute a transaction at the bestavailable price immediately. No price is speciﬁed on the order. Since it is to executed at the‘market’, i.e. at the price prevailing when the order is actually done, the client is trying toestablish or get out of a position as quickly as possible and, hence, timing is critical. Forexample:Client: I want to sell 10 million Swiss francs value spot – what is your quote please?Trader: I will buy 10 million Swiss francs and sell dollars at 1.6710 for value spot.Spelling out, almost pedantically, the ﬂow of funds will avoid problems at a later stage. If aclient agrees to the way the trader expresses the deal, there should be no discrepancies. Thequote is the price prevailing in the market.
21.2 AT BEST ORDERSSecond, there are ‘at best orders’. This type of order enables the client to execute a transactionat the best available price. No price is speciﬁed on the order, which allows the bank to executethe order with little impact on the prevailing market conditions. This type of order is usually for‘large transactions’. A client trying to establish or get out of a position as quickly as possibleuses at best orders. The client who does not want to disrupt the market also uses this type oforder. However, take care with the terminology. For example:Client: Sell 50 million dollars for me against the yen and let me know the price of this orderonce it has been executed. Wrong!Client: I am a seller/I want to sell 50 million dollars and buy yen. Please let me know theprice at which you have executed this order, later on. Right!In the ﬁrst conversation, there could be some confusion about who is buying, who is selling,and what currency. The trader will hear ‘sell’ and could assume that he or she is to be the sellerof dollars.
21.3 STOP ORDERSThird, there are stop orders. As the foreign exchange market can be volatile and currency valuescan change rapidly within a short period of time, stop orders are, therefore, used by clients to
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protect themselves against sudden price movements. These orders are used to limit losses, orto protect proﬁts on previously established positions, or to initiate new positions when marketmoves occur. The important point to note about stop orders is that they are contingent ordersand are only executed when the stop price has traded or is touched. The way the stop orderworks is that a market order would be triggered if and when the price reached the designatedprice. A buy stop order is placed above the market price, and if the market rises to the ‘stop’level speciﬁed in the order, the order becomes a market buy order. A sell stop order is placedbelow the market order when the market drops to that level. In that event, it would be executedas a market sell order.For example, assume that the client has previously bought 5 million Swiss francs against thedollar at 1.6710. The client wants to limit losses in the event that the market moves adversely.The client will, therefore, enter a sell stop at 1.6650. The client would then enter the order as:Client: Stop loss sell 5 million Swiss francs against the dollar at 1.6650.If the market drops to $/Sfr 1.6650, the trader will immediately execute the sell stop at the nextbest available price. Today, it is very rare for stop losses to be ﬁlled at the price.
21.4 DISCRETIONARY PRICE ORDERThe fourth type of order is a discretionary price order, which, in effect, is a stop order, but theclient will establish at the outset the price at which he or she wants to deal but will givethe trader the discretion to do better if possible than the stated price. If, in the attempt to dobetter, the trader misses the level because the market has moved suddenly, there can be norecriminations on the client’s part. These orders are perhaps the most difﬁcult to execute, sinceit puts a responsibility on the trader to do the best that can be done in sometimes difﬁcultconditions for both parties.
CONCLUDING REMARKSIn all situations, whether dealing or leaving orders, please remember to make sure that all theinstructions/details are clear and that the person on the other end of the phone (or Reuters, etc.)clearly repeats the instructions/details back to you.
Glossary of Terms for Chapter 21The following lists the more popular orders used in both the foreign exchange and the futuresmarket. Although the two markets share common orders, some are only relevant for the futuresmarket, for example ‘market on opening’. Hence, it is very important to state exactly andclearly what the order is and what, if necessary, you are trying to achieve.Fill or kill (FOK) This is used by clients wishing an immediate ﬁll, but at a speciﬁed price.If the price is not attainable, the order is ‘killed’.Limit order This is an order to buy or sell at a designated price. Limit orders to buy areplaced below the market while limit orders to sell are placed above the market.Market if touched (MIT) This is the opposite of a stop order. A buy MIT is placed below themarket and a sell MIT is placed above the market. It is normally used to enter the market orinitiate a trade. It becomes a market order once the limit price is touched or passed through.An execution may be at, above or below the originally speciﬁed price.Market on close This order will be ﬁlled during the ﬁnal seconds of trading at whateverprice is available.Market on opening This is an order that the client wishes the trader to executed during theopening of trading at the best possible price obtainable within the opening range.Market order The market order is executed at the best possible price obtainable at the timethe order reaches the trader.One cancels the other (OCO) This is a combination of two orders written on one order ticket.Once one side of the order is ﬁlled, the remaining side of the order should be cancelled. Thistype of order eliminates the possibility of a double ﬁll by having both orders on one ticket.Spread The client wishes to take a simultaneous long and short position in an attempt toproﬁt via the price differential or ‘spread’ between two prices.Stop close only The stop price on a stop close only will only be triggered if the markettouches the stop during the close of trading.Stop limit This order lists two prices and is an attempt to gain more control over the priceat which the stop is ﬁlled. The ﬁrst part of the order is written like a stop order. The secondpart of the order speciﬁes a limit price. This indicates that once the stop is triggered, you donot wish to be ﬁlled beyond the limit price.Stop order A buy stop order is placed above the market and a sell stop order is placed belowthe market. Once the price is touched, the order is treated like a market order and will beﬁlled at the best possible price.
22Electronic Foreign Exchange TradingFor the past few decades, the telephone has been the near universal means of communicationbetween the banks and their clients for the executions of foreign exchange. The telephonehas served the needs of the market well but now, with the advent of Internet trading, it isa moot point as to whether deal execution is signiﬁcantly easier and more efﬁcient using acomputer instead of the telephone. Some would offer this as an argument against the introduction of e-commerce solutions to the foreign exchange markets. Some fear that a consequent reduction of personal contact between salesperson and client could undermine valuedrelationships.
22.1 DAYS GONE BYNot so long ago, banking institutions were the sole purveyors of the information vital to thetransaction of business in the market. With no central organized market, bank dealers executedtrades solely by telephone or telex, writing trade details on pieces of paper, keeping positionson blotters and maintaining charts by hand. The resulting scarcity of information meant thatprice discovery was inefﬁcient, bid–offer spreads were wide, margins were large, and majorinstitutions played the largest role simply because they knew where activity and prices in themarketplace were occurring.As a result, foreign exchange trading was a proﬁtable activity for these institutions. Therisks of trading were somewhat controlled and isolated at the bank level, with a degree ofvolatility sufﬁcient enough to warrant active participation by only the most sophisticated ofmarket participants.
22.2 THE ENVIRONMENT TODAYToday, most clients are quite sophisticated; they know where the market is and what bid–offerspreads to expect for the foreign exchange deals. Banks and brokers who are uncompetitive intheir pricing don’t even leave the starting blocks in the race to win foreign exchange business.What distinguishes the best from the rest is the provision of high-quality information, in theway of charting and ﬂows of relevant market information. In addition, clients are looking forsystems that are Internet enabled, scalable across regions, reliable and safeguarded againstcrashes. Clients are also looking for Internet platforms, which offer real-time risk managementsystems, among other demands.Access to price information is, today, widely available. Institutional investors and retailinvestors can now gain live access to multi-contributor price feeds, which can be downloadeddirectly into spreadsheets, if necessary. In addition, up-to-the-minute political and economicdevelopments are widely available through news sources such as MMS and CNBC. As a resultof these developments, however, bid–offer spreads have collapsed, as have proﬁt margins andthis, in turn, has hampered the growth of direct investor participation.
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22.3 INTERNET REVOLUTIONThe development of Internet-based trading has created a virtually zero-cost delivery channel.Information is now universal and market participants can distribute rates and price spreads24 hours a day, 7 days a week to an unlimited number of potential market participants, rangingfrom the small-time retail player to the major league player. Thus, the Internet is transformingtoday’s market through the low demands it makes on staff and technology. Using the Internetin foreign exchange investing means that there are no errors or transaction volume constraints.Also, active traders can exploit even the narrowest of margins, thus increasing the potentialparticipation of the smallest retail client who is used to paying as much as 5% to trade foreignexchange.22.3.1 Internet trading platformsThere are three distinct types of Internet trading platforms, whether multibank portal,for example FXAlliance, or single portal, which are available for use by most marketparticipants:
r Click-’n’-deal is the most common in the market and is, perhaps, the most transparent, inthat the pricing is not ‘marked’ one way or another, as there is no trader intervention. Theprices are live and instantly tradable by just clicking on a currency pair (Figure 22.1).r Request-for-price uses a chat function for requesting the prices. This requires a trader topick up the conversation and to physically type in the price. The downside to this systemis that the pricing is not transparent as the trader has time to check a client’s positionbefore quoting a price. Thus, the trader has the ability to ‘shade’ the price one way or theother.r Instant anonymous trading between principles allowing traders to see every bid and offerin the book and thereby greatly increases market transparency.
Figure 22.1 Click-’n’-deal. Reproduced by permission of IFX Markets LtdSource: IFX Markets Ltd – IFX Direct
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Figure 22.2 IFX Direct real-time information. Reproduced by permission of IFX Markets LtdSource: IFX Markets Ltd – IFX Direct
22.4 WHAT ELSE TO EXPECT?The majority of single portals not only offer a platform on which to trade, but also quite alot more, and all in competition with each other. For example, looking at the IFXMarketsLtd platform (www.ifxmarkets.com), IFX Direct not only offers real-time tradable prices in20 spot currency pairs, but also IMM and Finex EFP contracts. To complement these livestreaming prices, there is a ‘chat’ function, which allows all clients access to speak to thetraders directly. In addition to this, their technology also offers a working order capability,which can create complex linked orders. Their on-line back-ofﬁce system allows clients tocheck their open positions, equity and proﬁt and loss status. IFX Direct also provides accessto real-time charting, real-time news, market information and technical analysis (Figure 22.2).
CONCLUDING REMARKSIt can be seen from the above that the foreign exchange markets are no longer the domain oflarge traders with multimillion dollar accounts and connections at large banks. The electronicforex revolution is here and is providing traders of all sizes legitimate options for tradingforeign exchange. E-forex, or direct access trading of spot currencies, is now easier than everand, like electronic trading of stocks, will be here to stay. It has the potential to revolutionizeinvestment behaviour and provide more trading opportunities than ever before.
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An average individual armed with a computer, a mouse and an Internet connection can tradespot foreign exchange literally 24 hours a day, 7 days a week. It seems that, overnight, anindustry has sprung up to satisfy this market. Firms that did not exist one or two years ago arenow growing rapidly. Such ﬁrms often provide free charts, signals, quotes, technical analysis,full simulation platforms and sometimes even ﬁnancing to open an account. What was beforethe domain of the banks, corporations and funds is now accessible to everyone.Just consider the leverage. E-forex trading can boast levels far higher than futures andcertainly equities. It’s common for trading platforms to offer 50-to-1 and 100-to-1 leverage,enabling trading of $100 000 worth of a foreign currency with only 2% or $2000 cash in theaccount.While the Internet will play an increasing role in encouraging direct institutional and retailparticipation on the foreign exchange market, to date this has mainly been occurring throughbusiness-to-business solutions, notably proprietary electronic systems developed by banks thatgive clients access to their research and prices. However, the banks should be on their guard.Primary market makers, such as IFXMarkets Ltd, should be viewed as real competitors for theday-to-day business that exists in the foreign exchange Internet market.
23Margin TradingMargin is borrowing money from a broker to buy a stock, or commodity, or currency pair andusing the investment as collateral. It is, in effect, a performance bond in cash or another meansof collateral deposited by a trader. Investors generally use margin to increase their purchasingpower to enable them to own more stock or take larger positions in the market, without fullypaying for it. However, margin exposes investors to the potential for higher losses.The concept of ‘trading on margin’ is not new and has been employed by professionaltraders throughout the twentieth century. Over recent years, there has been a growing cadre ofself-styled market experts who have been day trading and tend to be the main users of margintrading or ‘leveraged’ trading via newly created companies that provide trading facilities forsuch traders or those who rely on Internet connections to trading sites.
Margin is referred to as collateral, which implies leverage trading.
23.1 UNDERSTAND HOW MARGIN WORKSThe easiest way to understand how margin actually works is to assume, for example, that atrader bought a stock for $50 and the price of the stock rises to $75. If the trader bought thestock in a cash account and paid for it in full, the trader would be able to earn a 50% returnon the investment. But, if the trader bought the stock on margin – paying $25 in cash andborrowing $25 from a broker – the trader will have 100% return on the money invested and,of course, still owe the broker $25 plus interest.The downside to using margin is that if the stock price decreases, substantial losses canmount quickly. For example, if the stock bought for $50 falls to $25 and the trader paid for thestock in full, the trader will lose 50% of the money. However, if the trader bought on margin,he or she will lose 100% and will still have to pay the interest owed on the loan.In volatile markets, traders who put up an initial margin payment for a stock or currencyposition may, from time to time, be required to provide additional cash if the price of thestock falls. Some traders have been shocked to ﬁnd out that the brokerage ﬁrm has the rightto sell their securities that were bought on margin – without notiﬁcation and potentially ata substantial loss to the trader. Thus, if the broker sells the trader’s stock after the price hasplummeted, then the trader will lose the chance to recoup the loss if the market regains.In currency terms, when a trader buys (goes long) or sells (goes short) a currency pair, thevalue of the currency pair, as an instrument, is initially close to zero. This is because (in thecase of a buy) the quote currency is sold to buy an equivalent amount of the base currency.As the market rates ﬂuctuate, the value of the currency pair position held will also ﬂuctuate.Thus, if the rate for the currency pair goes down, the trader’s long position will lose value andbecome negative. To ensure that the trader can carry the risk in the case a position results in aloss, a broker will typically require sufﬁcient margin to cover those losses.
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23.2 A SIMPLE EXAMPLEIf a client opens an account with $100 000, with an agreed margin level of 5%, the client willbe allowed to trade with 20 times leverage (100 divided by 5) which means that the clientneeds to maintain 5% of any open position. Hence, the client can have open positions to thevalue of $2 000 000 ($100 000 divided by 5%). As proﬁt or loses occur, the amount that canbe traded varies accordingly. Thus, if the client made a $20 000 proﬁt one day, then he or shecould have an open position of $2 400 000 ($100 000 + $20 000 = $120 000 divided by 5%).
23.3 RECOGNIZE THE RISKSMargin accounts can be very risky and are not suitable for everyone. Before opening a marginaccount, understand that:
r you can lose more money than you have invested;r you may have to deposit additional cash or securities in your account on short notice to covermarket losses;
r you may be forced to sell some or all of your securities when market prices reduce the valueof your securities; and
r your brokerage ﬁrm may sell some or all of your securities without consulting you to recoupthe loan it made to you.In order to protect against any of the above, you should know how a margin account works andwhat happens if the price of the stock purchased on margin declines. You should also knowthat the ﬁrm charges interest for borrowing money and realise how that will affect the totalreturn on the investment. Be sure to ask the broker if it makes sense to trade on margin in lightof ﬁnancial resources, investment objectives held and tolerance for risk.
23.4 GENERAL MARGIN RULESIn general, brokers will require a margin to be deposited with the ﬁrm before trading can begin.Today, margin rates vary from 1% upwards, depending on the currency pair. For example,trading the euro against the dollar can be traded quite readily on just a 1% margin, while takinga position in a more volatile currency pair, like the South African rand against the dollar, couldrequire a margin of 25%.Obviously, in order to maintain a currency position, there must be sufﬁcient funds to coverany potential loss:
r Initial margin represents the resources required to open a position.r Variation margin represents the current proﬁt or loss being made on any open positions.r Maintenance margin is a minimum amount of collateral needed in the account.23.5 MARGIN CALLS IN VOLATILE MARKETSMany margin investors are familiar with the ‘routine’ margin call, where the broker asks foradditional funds when the equity in the customer’s account declines below certain requiredlevels. Normally, the broker will allow from 2 to 5 days to meet the call. The broker’s calls areusually based upon the value of the account at market close since various securities regulationsrequire an end-of-day valuation of customer accounts.
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However, in volatile markets, a broker may calculate the account value at the close and thencontinue to calculate calls on subsequent days on a real-time basis. When this happens, theinvestor might experience something similar to the following example with stocks:Day 1 Close: A customer has 1000 shares of XYZ in the account. The closing price is $60,therefore, the market value of the account is $60 000. If the broker’s equity requirementis 25%, the customer must maintain $15 000 in equity in the account. If the client has anoutstanding margin loan against the securities of $50 000, the client’s equity will be $10 000($60 000 − $50 000 = $10 000). The broker determines the client should receive a margincall for $5000 ($15 000 − $10 000 = $5000).Day 2: At some point early in the day there has been a ‘dramatic’ move in the market andthe broker contacts the client to inform him that he has x number of days to deposit $5000 inthe account. Shortly thereafter, on Day 2, the broker sells the customer out without notice.What happened? In many cases, brokers have computer-generated programs that will issuean alarm (and/or take automatic action) if the equity in a customer’s account further declines.For example, assume that the value of the XYZ stock in the customer’s account continues todecline during the morning of Day 2 by another $6000 – that is, the shares are now worth only$54 000. The customer still has a loan outstanding to the broker of $50 000, but now the brokeronly has $54 000 in market value securing that loan. So, based upon the subsequent decline,the broker decided to sell shares of XYZ before they could decline even further in value.Had the value of the securities stayed at about $60 000, the broker would probably haveallowed the customer the stated number of days to meet the margin call. Only because themarket continued to decline did the broker exercise its right to take further action and sell outthe account.
CONCLUDING REMARKSMargin-based trading refers to trading in transaction sizes larger than the funds in the account.By leveraging the funds in the account, traders can take better advantage of small movementsin the market to build up proﬁts quickly. Conversely, leveraging an account to trade in largertransaction sizes can just as easily work against a trader and magnify losses, essentially puttingmost of the funds in the account at risk. As trading foreign exchange on margin can be veryrewarding, a strict trading discipline should be adhered to.In order to limit the risks, a trader should continuously monitor the status of the positionsagainst current market prices and should run stop-loss orders for each position open. A stop-lossorder speciﬁes that an open position (trade) should be closed automatically when the exchangerate for the currency pair in question reaches the speciﬁed threshold. For long positions, thestop-loss rate is always lower than the current market exchange rate, while for short positions,it is always higher.
Part IVFundamentals and Technical Analysis
24Fundamental versus TechnicalApproachesThe ﬁrst factor to note about foreign exchange prices is that they are relative and not absolute.
Foreign exchange prices are relative prices, not absolute prices.
They represent in the broadest sense a comparison of economies and all that this entails –for example, unemployment, inﬂation, wage performance, and budget balance. The extent towhich one country performs better than another will be reﬂected in the relative value of itscurrency against the other’s. Forecasting how a currency will move is still an art rather than ascience. There are really two basic approaches, fundamental and technical, which need to beconsidered.
24.1 FUNDAMENTAL APPROACHThe fundamental approach relies on the analysis and understanding of several factors. Traditionally, currency forecasters look at economic factors, such as a country’s balance of paymentstrend, to determine the direction of that country’s currency exchange rate. The underlying theory is that a country cannot continue to run either a large trade deﬁcit or a surplus without someconsequent effect on its currency’s exchange rate. This theory does not always hold true, ascapital ﬂows are becoming an important factor affecting exchange rates. Attention has, therefore, been given to both short- and long-term capital ﬂows. From the balance of payments, theforecaster will look at the country’s level of reserves, i.e. foreign exchange reserves includingborrowing facilities, to determine the resources available to the central bank if the latter wereto support a certain level of exchange rate. The fundamentalist will go through an analysisof the country’s overall economic performance, i.e. domestic economy, as indicated by thegross domestic product. As statistics on the GDP are released on a quarterly basis, monthlydata of key economic indicators like industrial production, personal income, industrial output,retail sales, and so on, will be closely monitored for clues to the exchange rate. Forecastersalso believe that the higher a country’s inﬂation rate relative to other countries, the fasterwill that country’s currency depreciate. This is known as the purchasing power parity (PPP)theory.At times, a country’s social and political environment also affects a country’s exchangerate. Politics and politicians, their attitudes, afﬁliations and pronouncements are always closelyscrutinized. For example, the results of a general election, a change of government or civilianunrest and consequent government actions have had, in the past, a marked impact on certaincurrencies. Government policy, which also must be considered as a factor, can be divided intotwo categories:
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r First, monetary policy will encompass the level of interest rates, the growth of moneysupply, activities of the central bank in the domestic money market and in the foreignexchange market. The forecaster will attempt to gauge all of the above, especially interestrate levels, as they are a very important determinant of short-term capital ﬂows. In fact,international investors look at relative interest rate levels to determine the currency in whichto invest. Also, monetary authorities, by pursuing an expansionary policy to stimulate theeconomy, can attract long-term capital investments.r The second category to note is the ﬁscal policy of a country.However, there are political events that cannot be foreseen. The invasion of Kuwait in August1990, the coup d’état of the Gorbachev government in August 1991, the NATO air strikes inKosovo, or the terror attack on The World Trade Centers in New York in September 2001. Insuch unforeseen events, a foreign exchange trader will initially respond by ‘ﬂight to