Manipulation can cause a panic. One can manipulate all of the other financial instruments I mentioned earlier to blow out stops or other barriers. For currency knock-out options, you can manipulate currencies to hit the knock-out trigger. Knock-out options are just one example of many types of currency derivatives vulnerable to manipulation.
In an earlier commentary, I talked about manipulation in the gold and silver markets. Last week, there appeared to be blatant manipulation in the gold market. ZeroHedge reported that the CME went dark for 10 seconds after someone “banged the open” for gold.
In June, Bloomberg reported that traders at banks colluded to manipulate foreign exchange rates and had also been front running clients’ orders. According to the June 13, 2003 report by Liam Vaughan, Gavin Finch, and Ambereen Choudhury:
“The manipulation occurred daily in the spot foreign exchange market and has been going on for at least a decade, affecting the value of funds and derivatives. The $4.7 trillion-a-day currency market, the biggest in the financial system, is also one of the least regulated.”
Given what every financial professional knows about the destructive potential of currency manipulation, it’s a national disgrace that U.S. banks are involved. In 17th century England, counterfeiting was high treason and the penalty was death. Today manipulating currencies earns the “penalty” of a less than scintillating coffee klatch at the White House.
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