Last week regulators from the US, Britain, and Switzerland announced fines of $4.25 billion against several major financial institutions for conspiring to manipulate the foreign exchange markets. Simultaneous with the settlement announcements, the CFTC published select transcripts detailing chat room evidence of the manipulations. The transcripts are rough reading, especially if you aren’t a text-happy teenager well versed in financial slang and impervious to foul language. But because they afford critical background for our story, we’ve decided to translate a short excerpt from one chat into clearer, safe-for-work English. The excerpt comes from three traders discussing how they could manipulate the 4 pm WM fixing for GBP-USD (often referred to as “cable” by FX traders), selling large amounts just before the fixing to drive the rate down. Trader 1 (70 minutes until fix): it’s early but I am selling cable…

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Private Equity Case Study: Emerging Markets Our Client: A large private equity firm contemplating an emerging markets acquisition. Situation: A private equity fund was in a competitive bid situation to acquire a retail store chain in Eastern Europe. While the deal appeared attractive in local currency, it was uncertain when translated in USD. In addition, hedging seemed unattractive because forward exchange rates reflected the deep depreciation of the local currency. Summary: The investment team’s objective was to determine the most cost-effective hedging strategy, the likely key drivers of the local currency and the maximum exposure to their returns should their equity be unhedged. Chatham Financial was able to assist in exploring various hedging strategies including forwards, options and inflation-linked instruments. Also, we assisted in researching various macroeconomic data for the country to develop correlations against the investor’s base currency, modeling…

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Ok, so maybe we haven’t seen a run up in rates like this in, oh, almost three years, but that doesn’t mean it’s time to panic. After all, we are still in a period of extraordinary accommodation, in zero-interest-rate-policy land, still enjoying the lowest rates of our lifetimes. The economy is thought to be doing pretty well right now – not the best that it can be, but growing steadily and generating jobs at a modest clip – and apparently that’s the problem. If the economy is doing better, then maybe we no longer need so much stimulus, and if we reduce said stimulus, we are surely one day closer to stopping it altogether, and reversing course. So, what exactly did we witness last week? Plain and simple, market participants are anticipating the end to quantitative easing and transitioning to…

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On January 1, 1999, the euro (EUR) made its debut as an official European currency and lawful means of exchange for 12 independent states. Ten short years later, another revolutionary currency was introduced to the world. This new money is the first attempt at a “crypto-currency” and has recently become a topic of immense interest in financial circles, not just for its technical idiosyncrasies (you can “mine”) but its economic rules: decentralization, fixed supply, pure floating currency. We’re talking of course about Bitcoins (BTC). If you read the Wall Street Journal, The Economist, Financial Times, chances are you have come across the concept; maybe you’re one of the few that’s been curious enough to trade. What separates the euro, the US dollar, or other traditional currencies from Bitcoins is that they’re not issued by a central monetary authority. Standing in…

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