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lordmwesh
#1 Posted : Tuesday, June 21, 2011 11:43:09 AM
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Joined: 11/14/2006
Posts: 16
Anybody with an idea what is happening at the forex market? In layman's terms please.

The best time to invest is when there is blood in the streets - Chinese Proverb
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selah
#2 Posted : Tuesday, June 21, 2011 12:07:56 PM
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Joined: 10/13/2009
Posts: 1,950
Location: in kenya
As a layman my self, what I think is happening is that the shilling has been hit by speculators(People who are not in the business of export or import but buy the green buck and wait for it to appreciate against the shilling and sell)Given the rise in the number of forex businessmen over the last few years it goes without saying they are the cause of our current predicament.

Although speculators may be essential in running an efficient exchange market sometime they may be irrational in that if they see signs of trouble in the future i.e rising inflation,increased interest rate and diminishing investment opportunities they sell the shilling and buy the dollar which create a frenzy as we are witnessing.

The only way CBK can remedy the situation is as its has done secure adequate foreign exchange reserves and watch for the market to self correct since trying to intervene is like catching a falling knife.

The other thing it can do is talk with banks(who I think are mostly the speculators) and calm their nerves and finally work on containing the inflation which is fueling this irrational exuberance(damn I had t use this term).

'......to the acknowledgment of the mystery of God, and of the Father, and of Christ; 3 In whom are hid all the treasures of wisdom and knowledge.' Colossians 2:2-3
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kizee1
#3 Posted : Tuesday, June 21, 2011 12:11:08 PM
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Joined: 9/29/2010
Posts: 679
Location: nairobi
selah wrote:
As a layman my self, what I think is happening is that the shilling has been hit by speculators(People who are not in the business of export or import but buy the green buck and wait for it to appreciate against the shilling and sell)Given the rise in the number of forex businessmen over the last few years it goes without saying they are the cause of our current predicament.

Although speculators may be essential in running an efficient exchange market sometime they may be irrational in that if they see signs of trouble in the future i.e rising inflation,increased interest rate and diminishing investment opportunities they sell the shilling and buy the dollar which create a frenzy as we are witnessing.

The only way CBK can remedy the situation is as its has done secure adequate foreign exchange reserves and watch for the market to self correct since trying to intervene is like catching a falling knife.


The other thing it can do is talk with banks(who I think are mostly the speculators) and calm their nerves and finally work on containing the inflation which is fueling this irrational exuberance(damn I had t use this term).



..............
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dunkang
#4 Posted : Tuesday, June 21, 2011 12:23:21 PM
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Joined: 6/2/2011
Posts: 4,818
Location: -1.2107, 36.8831
@Lord, from a layman's point of understanding, the DOLLAR is in high demand compared to the SHILLING.

Just to expound, the Central Bank of Kenya (CBK) is buying a lot of DOLLARS from the local market (NB: because of some pressure from some guys called IMF), therefore, making a deficit shooting the exchange price SKY HIGH.

EXAMPLE: When you buy East African Cables Limited Shares at KES14.70 in May 2011 and some other buggers want to sell theirs on 21st June 2011 at KES13.05, this is what they (the non-laymen/EXPERTS) call over-supply since everyone wants to buy them at KES15 and above.

From the above VERY PAINFUL example, the CBK is doing exactly the opposite, now that you (local Investor) are the LOSER, while Williamson, Kakuzi and Sasini being the GAINERS!

Hope you got confused, fellow layman!
Receive with simplicity everything that happens to you.” ― Rashi

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ecstacy
#5 Posted : Tuesday, June 21, 2011 12:29:07 PM
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lordmwesh
#6 Posted : Tuesday, June 21, 2011 4:00:26 PM
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Joined: 11/14/2006
Posts: 16
OK, now I am more confused. Why should we be fighting for the dollar? Why not fight to have the shilling? Why does all countries in the world insist on hoarding dollars? Dollars are not gold! For as much as I know, central bank should be buying more gold than dollars! :(


Let him that would move the world first move himself - Socrates
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GGK
#7 Posted : Tuesday, June 21, 2011 7:29:40 PM
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Joined: 11/21/2006
Posts: 608
Location: Ruiru
My two cents:I think the only other logical option for exchange rate intervention is by hiking the interest rate for the 91 day treasury bills. This way the The instrument will be more attractive to speculators thus wipe out the over supply of the shilling. On the other hand, the other sectors will suffer as credit becomes less available. We choose the better of the devil.

I hate economics.......its so stochastic!
"..I am because we are. "― Ubuntu, Umtu,
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dunkang
#8 Posted : Tuesday, June 21, 2011 8:12:21 PM
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Joined: 6/2/2011
Posts: 4,818
Location: -1.2107, 36.8831
GGK wrote:
We choose the better of the devil.

I hate economics.......its so stochastic!


Me toooooo!
Receive with simplicity everything that happens to you.” ― Rashi

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madhaquer
#9 Posted : Wednesday, June 22, 2011 8:28:28 AM
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Joined: 11/10/2010
Posts: 281
Location: Nairobi
My 2cents:
The speculators are not necessarily the banks though the transactions are seen as coming from the banks, but they are from the mwananchi and alot of businesses.
This days, if you operate an import focused business (like selling cars, electronics, steel, etc..) you want to operate 2 types of bank accounts. A foreign currency one --> one you use to buy the vehicles and a local currency one --> where your customers will pay into.
But since the shilling is on a yoyo and the price of your stock is not fluctuating as much, you do not want to loose money on your purchases. You keep most of your money in the usd account.
That way, changes in forex do not affect your cost of goods. When it's time to sell, you can offset the changes in forex by charging the customer higher (of course they pay in kes) and you quickly convert to usd since the shilling is on a free fall.
Poor banks have to deal with more customers transferring money from their shilling accounts to their usd accounts and in the process they too need to increase their reserves to match.
The CBK too has to do the same as banks demand more dollars.

How do we fix this problem ... The CBK can intervene either by raising short term interest rates to encourage the business and banks to put their cash there or by playing around with the money supply.
Whether that works or not is another story.
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GGK
#10 Posted : Wednesday, June 22, 2011 9:28:51 AM
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Joined: 11/21/2006
Posts: 608
Location: Ruiru
What do Wazuans see as the least the shilling will go? In the year 2000, the shilling was at 60/= per dollar

I think CBK (or GoK) needs to step in and return to some reasonable level like 75/= Hapa Mashinani tunaumia.
"..I am because we are. "― Ubuntu, Umtu,
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