1) Read each article and describe all relevant information; for instance, the factual elements, strategic issues, the interactions among entities and generally what the article is about.

2) Write a concluding paragraph telling the main thing you take away from the article.


1) “Hong Kong Ramps Up Intervention to Curb Local Currency,” Wall Street Journal, August 1, 2014.

2) “Crash Course, the Origins of the Financial Crisis,” Economist, September 7, 2013. For this article, write out the role of various parties and financial instruments involved in the financial crisis. Write more than one page if necessary.

Hong Kong Ramps Up Intervention to Curb Local Currency

Monetary Authority Injects Billions Into Market in July as Foreign Funds Flow In

The HKMA maintains a strict trading band for the Hong Kong dollar. Agence France-Presse/Getty Images
By Fiona Law Aug. 1, 2014 4:59 a.m. ET
Hong Kong’s de facto central bank injected $65.1 billion Hong Kong dollars (US$8.4 billion) into the foreign-exchange market in July to defend the local currency peg to the U.S. dollar as foreign funds continued to pour into the city to feed a hunger for Chinese assets.
Funds have been flowing into Hong Kong, which offers foreigners an easy way to tap Chinese stocks and bonds, at a faster pace than late 2012, when the Hong Kong Monetary Authority last intervened as investors’ risk appetite for the city’s stocks rose.
At that time, HKMA injected HK$107 billion (US$13.8 billion) into the forex market from October to December in a bid to cool the Hong Kong currency. The latest intervention totaled more than half that amount in the span of a single month.

The HKMA—obliged to buy or sell the local currency whenever it touches either side of the authority’s HK$7.75-HK$7.85 band against the U.S. dollar—said Saturday that it attributed the strength of the Hong Kong dollar to listed companies’ dividend payments, cross-border merger-and-acquisition deals such as
Oversea-Chinese Banking

HK$40 billion takeover of
Wing Hang Bank
Ltd., as well as an active market for initial public offerings.
In July, the benchmark
Hang Seng

Index had its best month since 2012, posting a 6.8% gain and hitting a three-year high, as China’s improving economy persuaded investors to snap up the city’s stocks, which are made up mostly of mainland Chinese companies.
Russia’s second-largest mobile operator, OAO

has decided to keep about 40% of its cash reserves in Hong Kong dollars because of global market instability and as the West imposes sanctions on Moscow in a bid to force President
Vladimir Putin
to end his support for separatist rebels in Ukraine, The Wall Street Journal reported this week.
The fact that China’s Huawei Technologies Co. is its main equipment manufacturer was another factor in MegaFon’s decision, according to the report.
On Friday, the Hong Kong dollar remained sticky at the strong end of its trading band—HK$7.75 per dollar—and analysts have said they expect it to stay elevated as a program that allows direct trading between Hong Kong and Shanghai shares was likely to stoke demand for the local currency.
“But funds do not flow in one direction only,” Peter Pang, HKMA’s deputy chief executive, said Saturday. “Last year’s market turmoil caused by a large-scale outflow of funds from certain emerging markets showed that the direction of fund flows could change spontaneously in response to investors’ sentiments.”
“As the U.S. economy recovers and its monetary environment normalizes, there remain considerable uncertainties in the future direc

The origins of the fina nciaI crisis

Crash course

The effects of the Enancial crisis are still being felt, 6ve years on. This article, the
first of a series of 6ve on the lessons of the upheaval, looks al its causes

over investment in emerging economies,
especially China. That capital flooded into
safe American-government bonds, driv-
ing down interest rates.

Low interest rates created an incentive
for banks, hedge funds and other inves-
tors to hunt for riskier assels that offered
higher returns. They also made it profit-
able for such outfits to borrow and use the
extra cash to amplify their investments, on
the assumption that the returns would
exceed the cost of borrowing. The low
volatility of the Great Moderation in-
creased the temptation to “leverage” in
this way. If short-term interesl rates are
low but unstable, investors will hesitate
before leveraging their bets. But if rates
appear stable, investors will take the risk
of borrowing in the money markets to buy
longer-dated, higher-yielding securities.
That is indeed what happened.

Frorir houses to money mirkets
When America’s housing market turned, a
chain reaction exposed fragilities in the
linancial system. Pooling and other clever
financial engineering did not provide
inveslors with the promised protection.
Mortgage-backed securities slumped in
value, if they could be valued at all. Sup-
posedly safe cDos turned out to be
worthless, despite the ratings agencies’
seal ol approva[. It became difficult to sell
suspect assets at almost any price, or to
use them as collateral for the short-term
funding that so many banks relied on.
Fire-sale prices, in turn, instantly dented .
banks’ capital thanks to “mark-to-market”
accounting rules, which required them to
revalue their assets at current prices and
thus acknowledge losses on paper that
might never actually be incurred.

Tiust, the ultimate glue of all financial
systems, began to dissolve in zooT-a year
before Lehman’s bankruptcy-as banks
started questioning the viability of their
counterparties. They and other sources of
wholesale funding began to withhold
short-term credit, causing those most
reliant on it to founder. Northern Rock, a
British mortgage lender, was an early
casualty in the autumn of zoo7.

Complex chains of debt between
counterparties were vulnerable to just one
link breaking. Financial instruments such
as creditdefault swaps (in which the seller
agrees to compensate the buyer if a third
party defaults on a loan) that were meant
to spread risk turned out to concentrate it.
A rG, an American insurance giant buck- r)

f HE collapse of Lehman Brothers, a
I sprawling global bank, in September
zoo8 almost brought down the world’s
6nancial system.lt took huge taxpayer-
financed bail-outs to shore up the in-
dustry. Even so, the ensuing credit crunch
turned what was already a nasty down-
turn into the worst recession in 80 years.
Massive monetary and fi scal stimulus
prevented a buddy-can-you-spare-a-dime
depression, bu

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