The Role of Stock Market Speculation: DEVELOPMENT -part 2-
Speculation against some currencies was about to end with the EMS in 1993, bringing about profound changes in the MTC. Although the term “speculation” is often used as a pejorative, is only one type of investment where the agent bears risks that can not be covered.
Unlike other traders, speculators do not try to avoid risks by going to options and futures markets to guarantee a minimum return, thus avoiding fluctuations in exchange rates or prices of raw materials.
There are two main lines through which passes the global financial speculation. The currency markets and stock markets.
All exporting companies from all countries of the world, selling local goods and services abroad, the end of each operating cycle need to convert their income (dollars, euros, rubles, rupees etc.) in the currency of their country of origin. In their respective countries, companies must pay wages, raw materials, taxes and various benefits, which can only be satisfied with local money.
The reverse is the case of importers, who receive money and need to convert local currency to begin a new cycle. As a result of the need to buy and sell currencies as economic actors engaged in imports, exports and investments in different countries, it creates a foreign exchange market or changes.
While the purchases and sales of foreign exchange are carried out according to the needs and the pace required by the activities of these companies, these operations are an indispensable element for the development of the real economy. Under these conditions there is talk of speculation.
There is speculation when forex trading is focused on delivering profits regardless of the real economy. There are several and each day more varied forms of speculation, (round-trip transactions, arbitration, anticipation of exchange rate derivatives) etc.
Typically, the speculation is aimed at the use of a particular situation in which one currency can have different prices in two different markets.
For example, this is possible when the city of London UK pound costs 70 cents, while in Paris the same pound cost only 60 cents. The speculator to buy books in Paris to sell in London. The transaction in question does not provide any wealth to society except for the speculator, who will have received a profit of 10 cents per pound sterling sold. The untimely oversupply of pounds in London acts in the direction of the devaluation of the pound, causing a wave of instability that adversely affects the entire economic system of the country.
In order to absorb the impact the central banks of countries are forced to sacrifice its reserves to stabilize the price again of the coin. If the proportions of speculation than a reasonable amount of reserves that may lead to the collapse of the system with all the social consequences that means. The Bank of England was himself the victim of a speculative attack.
credit to: Lic. Eyelin Bello Caballero, MSc. Yaicel Rangel Díaz and MSc.Eimyn Rizo Lorenzo
Source: www.gestiopolis.com/finanzas-contaduria/especulaciones-en-los-mercados-financieros.htm
image source: www.philstockworld.com/wp-content/uploads/money-tp.jpg