Chapter 110 Sweden Falls (1)

Zhong Shi left the trading room wearily, stood outside the window and stretched his sore hands and feet. Looking at the brightly lit Victoria Harbor not far away, an inexplicable sense of pride rose in his heart, and a faint smile emerged from the corner of his mouth. meaning.

Sweden, the hometown of the Nobel Prize, is a model of the world's welfare state. It has the largest number of multinational companies in the world (according to the population ratio), and it has produced world-renowned companies such as Ericsson, Volvo Cars, IKEA, and Koenigsegg sports cars. s brand.

However, the Swedish economy has not been very good in the past few years. First, the Social Democratic Party, which came to power in the 1980s, carried out tax reforms. The tax deduction for interest expenses is now less than half of the interest expenses, which reduces the borrowing cost of borrowers by half. At the same time Substantial increases in taxation for investment with loans from financial institutions have greatly reduced borrowing costs.

  In this case, the real estate and securities markets became the first choice for investment, followed by a huge bubble. But in 1989, this false illusion of vanity began to shatter. With the recession of the world economy, the current account deficit of the Swedish government began to increase rapidly.

In this context, the four-party coalition government at that time launched a new reform plan untimely, abolishing the direct provident fund hated by the management, canceling a series of taxes such as stock transaction tax, reducing inheritance tax, energy tax, and employer tax, and privatizing 34 large and medium-sized state-owned enterprises have simultaneously opened aviation, media, telecommunications, education, automobiles and other fields to the outside world and introduced external competition.

These measures have reduced the tax deduction benefits for interest expenses and abolished the different tax arrangements for different types of investments in the original tax system, thus bringing about a rapid rise in tax real interest rates and increasing borrowing costs for borrowers, making The market had negative expectations for real estate investment and stock market investment, which triggered the bursting of the real estate and stock bubbles, and the economy entered a stage of overall contraction.

After successfully defeating the United Kingdom and Italy, hedge funds have launched a non-stop attack on France, another important country in the European Monetary System. The French franc accounts for more than 10 percent of the ECU (European Currency Unit) The third-largest share of the deutsche mark and the British pound became the second-largest currency after the pound's withdrawal.

   It can be said that if the European monetary system is a giant, then the German mark and the French franc are the two legs of this giant. If the French franc also falls along with the British pound, then the European monetary system will exist in name only.

After beating the Bank of England and the Central Bank of Italy in the foreign exchange market on September 16, hedge funds and commercial banks quickly turned their guns on the French franc. Two days later, the exchange rate between the franc and the mark fell to the level stipulated by the European Exchange Rate System. The French central bank, the Banque de France, was therefore forced to close for half an hour.

   Two days after the weekend, speculative funds raised more ammunition after leveling out the previously sold pounds in the market, and began to launch a more violent attack on the French franc again. On September 21st, the Bank of France was forced to spend 51 billion francs to barely temporarily stop the sell-off of francs in the foreign exchange market.

Generally speaking, the daily transaction volume of a country’s currency in the foreign exchange market is at most hundreds of millions or billions. A large part of the transactions are exchanged by the foreign exchange department of commercial banks and settled by foreign trade companies, like a day. The act of buying 50 billion francs is basically unprecedented, and these funds basically accounted for half of all the foreign exchange reserves of the Bank of France at that time.

After the craziest day of the attack, France finally got a chance to breathe. After receiving support from other central banks in Europe, the French government also announced an interest rate hike on the 23rd to attract the inflow of external funds, which finally repulsed international funds. of the first attack.

   Other countries whose currencies are pegged to ECUs and whose capital accounts are open (meaning that the currency is freely convertible) become the next round of targets for international funding. Unlike France, they are not part of the European Monetary System, which means these countries are largely alone.

   Among them, Sweden, whose economic situation is particularly bad, has been targeted by international funds!

  In 1989, Sweden opened its financial market, and capital could enter and exit freely, which gave the possibility of international capital speculation. As the Swedish currency, the krona was unilaterally linked to the ECU in 1991, which meant that when the exchange rate of the krona fell to a certain level, the Swedish central bank had to intervene in the foreign exchange market.

Although Zhong Shi made OTC options for shorting the Swedish Krona, it is hard for him to believe that this contract will be executed normally. You must know that there are currently about 15 large commercial banks in Sweden. After the financial crisis broke out, they did not know How many commercial banks will go bankrupt due to the skyrocketing non-performing assets? In fact, after the financial crisis, there are only four commercial banks in Sweden, including Nordic Swedish Commercial Bank and Swedish Commercial Bank.

   Fortunately, Zhong Shi made a guarantee. If the contract cannot be fulfilled, his counterparty will become HSBC. It's just that after this order is settled, will HSBC, which has received tens of millions of dollars in guarantee fees, fire a large number of employees of the private bank, because according to Zhongshi's memory, after the Swedish government finally abandoned the link between the krona and the ECU, the krona At one point it fell more than 20%.

  If the history does not change, HSBC will lose more than 600 million US dollars on this option, then HSBC's expected profit in this quarter will be greatly reduced, and the stock price will also fall accordingly.

What followed was that private banks including Lu Fei, as well as a large number of employees of HSBC's internal risk control department and foreign exchange trading department would be fired as a result. This incident would also become the largest in the world's financial history loss.

Zhong Shi can’t take care of so much anymore. These people in the private bank are notoriously ungrateful for profit. When helping him design the Swiss franc, they temporarily raised the exchange rate because of the skyrocketing Swiss franc in the market. It was enough to make Zhong Shi feel completely chilled towards them.

  After he finished handling the matters in the Mainland, he rushed back to Hong Kong immediately. This time he re-formulated his operating strategy to further gain profits in the foreign exchange market.

He first persuaded Liao Chengde to mortgage all the shares of the trading company in exchange for a three-month low-interest loan of 50 million U.S. dollars. The interest rate is 2.525% (annual interest, the data is half of the annual deposit rate plus the statutory spread of 0.875), which is much lower than the three-month period in Hong Kong of 3.74%.

Then, he used the funds invested in British treasury bonds and the stock market as a guarantee, and borrowed 1.5 billion US dollars at the same interest rate, plus Andrew's total net worth of 50 million US dollars in the past few years, a total of 1.6 billion US dollars. into the foreign exchange market.

  Andrew is very clear that this operation of foreign exchange currency is a situation where he can make money without losing money. For example, in the foreign exchange market, when buying and selling a currency with an exchange rate of 4.5 to one U.S. dollar, commercial banks will often buy it at a price of 4.4998 and then sell it at a price of 4.5002 to earn the difference. There may also be a substantial processing fee for the exchange.

   But these are not big problems, because once the Swedish krona is held, at most they will buy back the same share of krona in a similar way, and once the krona starts to fall, then it will be the beginning of their profit.

When Zhong Shi gathered Liao Chengde and Andrew together and told him what he had done in Europe, the two of them were stunned. The news of the defeat of the Bank of England shocked the whole of Hong Kong. As the suzerain country, Hong Kong people have more or less special feelings for Britain thousands of miles away, so there is a rather pessimistic sentiment in the society.

Liao Chengde never imagined that Zhong Shi turned out to be a member of the international hot money mentioned in the newspaper. Zhong Shi did not specifically mention how much market share he had and how much income he had, but he knew that Zhong Shi had been in the Singapore market before. The ability to attract money, so after a little consideration, I happily joined the group.

Compared to Liao Chengde, Andrew was even more surprised. He followed Zhongshi all the way during his last trip to Europe. He still vaguely remembered that on September 16th, Zhongshi was extremely busy and walked around frequently. Made over £100 million in profits in a single day on several different trading desks. But he never imagined that Zhong Shi would still wantonly short the pound, and then took advantage of the depreciation of the pound to cover his position. Now that he thought about it, Zhong Shi might have made more money in that invisible market.

   "How does this work? Can you make a profit just by exchanging it like this?" Liao Chengde still couldn't believe it when he saw that 1.6 billion US dollars had entered the foreign exchange account of HSBC. In his view, foreign exchange is nothing more than exchanging currencies, how can this make money!

   "Just watch carefully!" Zhong Shi didn't bother to explain, he glanced at Liao Xiaohua who was silent at the side, and then operated on the computer on his own.

  Liao Xiaohua was very winking now, and hurried to Liao Chengde's side, and began to use very professional words such as "European exchange rate system" and "fixed exchange rate system" to pour confusion on Liao Chengde.

   At the same time, an economic paper on "Short-Term Capital Flows and Currency Crisis" was published in the "Economist" magazine. This paper was published by Louis Chung, a doctoral student at Princeton University. The magazine "The Economist" has a pivotal position in the international economics circle, and this paper analyzes the crisis encountered by the British pound from various angles such as economy, exchange rate, foreign exchange derivatives, and hedge funds, so it will soon be published The London-based Economist published the semi-academic, semi-applied paper.

  (end of this chapter)