Vol 5 Chapter 21: Convergent transaction

Goliath’s tone was full of confidence. He knew in his heart that Germany just wanted to teach Italy a little lesson, but did not want the lira to really collapse. This did not do any good for Germany. On the contrary, the delicate relationship between Italy and Germany is closely related. , If the lira collapses like Mark, it will only hurt Germany.
　　 Go to Schlesinger to borrow money at this time, you can definitely borrow it.
　　 However, Ciampi did not have much confidence in this. It was not that he had no confidence in going to Germany to borrow money at this time, but that he really had no confidence in the lira.
As for the reason... Ciampi doesn’t know, he just feels uneasy, a bit like a trader’s sense of trading, but it’s not entirely. If you have to say a closer reason, probably It is the instinct that Qian Pi has been immersed in the financial field for many years and developed with rich experience.
　　 Of course, Ciampi doesn’t know, it doesn’t mean that others don’t.
　　 As a threat, if Shen Jiannan can sense the anxiety of Qian Pi now, he will definitely give his thumbs up to the richest and chaotic central bank governor.
　　 The operation of the European exchange rate mechanism is based on the intervention of central banks in exchange rates to maintain a limited range.
　　Each currency participating in the exchange rate mechanism will be assigned a target exchange rate for the European currency unit, which is called the central exchange rate of the European currency unit of the country's currency. The ratio of the central exchange rate of any two European currency units is defined as the bilateral central exchange rate between the two participating countries. Combining all the bilateral central exchange rates will form the parity fence of the European exchange rate mechanism.
　　 Each participating country has the responsibility to maintain its currency in the grid, allowing a predetermined range of fluctuations. The volatility of the currencies of the participating countries is ±2.25%, but some currencies are allowed to float within a larger range of ±6%. In order to make this mechanism work effectively, members should coordinate their monetary and fiscal policies and implement an orderly economic structural reform.
　　Member states should also agree to directly intervene in the foreign exchange market to maintain their currency in the European exchange rate mechanism.
　　 Since the birth of this exchange rate mechanism for more than ten years, it has been working well. The central bank no longer has to worry about the harm caused by violent exchange rate fluctuations. It is like automatic cruise, which saves worry and effort.
　　 But that is the past tense.
　　At the beginning, the European economy and monetary system established a new currency unit, the Egyptian. This currency unit originated from a currency weighted average, with the GDP in 1979 as the weight, and the currency of the member countries of the European economic and monetary system in 1979 as the basis. The constituent factors of the European currency unit are adjusted periodically to reflect changes in the relative GDP of the member states.
　　 When a new currency is incorporated into the European economy and monetary system, the composition of the European monetary unit will change.
　　 It seems, everything is perfect.
　　 just in this one, there is a small problem.
　　The problem is that under the European exchange rate mechanism, the economic level of each country is different, so the interest rates of each country are also completely different.
　　 Therefore, this small problem means that there is no loss.
　　 That's right, it means to make a profit without losing money.
　　 This is a very ridiculous little problem. Anyone who has paid enough IQ tax knows that there is never a stable profit without loss in the investment field. When a person tells others that he can guarantee a steady profit and no loss, either he is God or he is a liar.
　　 But as a saying goes: If you can trust God, sows will climb trees.
　　 If someone could make a profit without losing money, then the financial market would have ceased to exist.
　　 However, the differences in interest rates in various countries do provide smart speculators with an opportunity to make a stable profit without losing money. This opportunity is later known as the ‘convergent transaction’.
　　What is a convergent transaction?
　　 This is a very complicated thing.
　　 can probably be explained as looking for securities that are mismatched with other securities prices, long low prices, short short high prices. There are roughly four types of common transactions: convergence of sovereign bonds; convergence between new and old government bonds; and convergence in the securities market.
In short, it can probably be understood as the common currency unit Angstrom, but different countries have different interest rate differences. This difference means that traders and investment managers can freely invest in the highest yield The currencies of countries under the European Exchange Rate Mechanism do not have to worry about exchange rate risks, because the currency exchange rates are fixed within the European Community.
Why do you say that?
　　 is still the exchange rate mechanism of the European Community. When the currency of a member country rises or falls to the floating margin, the central bank of that country has the responsibility to operate in accordance with the exchange rate mechanism to stabilize the exchange rate.
One of the important factors that promote capital inflows is that international investors increasingly believe that the European exchange rate mechanism members are in the process of constantly moving closer to the European currency Egyptian units. In this case, it is conducive to the high-yield European exchange rate mechanism. Currency interest rate differences will increasingly overestimate the actual risk of exchange rate depreciation.
　　 It is conceivable that there is no need to worry about speculation in exchange rate changes at all, which almost means stable profit and no loss. Anyway, there are central banks from various countries to pay for the bill.
　　 People's favor for convergent transactions can be seen almost everywhere. A securities portfolio manager claimed that it is equivalent to "government-funded hedging transactions" in people's eyes. The European exchange rate mechanism has promoted a new class of money market mutual funds that have become popular at an alarming rate. This type of mutual funds specializes in trading short-term securities of foreign governments with high interest rates.
As a securities investment portfolio manager said in the transaction: "Since we can obtain higher returns from Spanish or Italian government bonds, and do not have to bear compensatory risks, why not stare at the income from SDM government bonds? What?
　　 Therefore, the European exchange rate mechanism has promoted a new level of money market mutual funds to become popular at an alarming rate, which specializes in trading high-interest short-term securities of foreign governments.
　　According to Morningstar estimates, these funds absorbed more than 20 billion U.S. dollars from investors between 1989 and 1992. The main securities investment behavior of these funds is convergent transactions. As for the overall size of market positions, the International Monetary Fund has counted: The total size of convergent transactions may reach 300 billion US dollars.
　　 This is where Ciampi has always been worried about electronic nomads, although he does not know the actual amount of convergence transactions conducted by global capital through the computer Internet.
　　 Ling Ling Ling
　　 London International Financial Exchange, the harsh opening bell rang on time, and traders who were already ready to take their positions in red vests were immediately refreshed.
　　Schlesinger’s conversation in front of the media was just yesterday. Everyone knows that today the market will usher in a tense and exciting day.