In a cavernous room on the 12th floor of First National Bank of Maryland, John Michael Rusnak and Matthew F. Kozak sit side by side with their eyes trained on a bank of computers.
Rusnak slides his chair behind a computer called the Electronic Brokering System and swings into action. Second by second, the computer shows the prices currency traders at money-center banks and large investment houses around the world are willing to pay to exchange their dollars for marks, francs, pounds and other major currencies.
"Wait a minute," Rusnak says above a noisy squawk box on his desk. He punches the keyboard, and in an instant he has exchanged $5 million for 8.6 million marks with New York's Chase Manhattan Corp.
In just seconds, the value of the dollar falls. Rusnak strikes, buying back the $5 million he sold for a quick $5,000 profit.
"If we could do that every time we would be sitting in our bathrobes smoking a pipe," said Kozak, First National's vice president of foreign exchange.
Rusnak and Kozak are currency traders. They buy and sell dollars, pounds, yen and marks for the bank's own account and for customers who sell products abroad.
Mostly, they work in obscurity, in contrast to the stock-market prognosticators who appear on television and are quoted in newspapers. But in recent weeks the obscure trader has come under attack -- accused of single-handedly crippling the currencies of Thailand, Malaysia, Singapore and other Asian countries.
Since July, Thailand's currency, called the baht, has fallen by 50 percent against the dollar, and Malaysia's ringgit has sunk 37 percent. Malaysia's prime minister, Mahathir Mohamad, blames the sudden devaluation on currency investors betting against Malaysia's money, and thereby bringing about its decline. These "immoral" speculators, Mahathir says, are "criminals" and "morons."
Who are currency traders and where do they work?
Most are simply bank employees, but a few have higher profiles. The billionaire philanthropist George Soros made a fortune trading currencies. He became known as the "man who broke the Bank of England" after he bet in 1992 that the British pound would fall. Soros made about $1 billion in a matter of hours when his gamble proved correct.
Most large money-center banks like Citicorp, Chase Manhattan and Barclays PLC, have currency desks. So do large investment banks and some mutual funds.
Where are currencies traded?
Around the world. The biggest currency trading cities are London and New York, but Singapore and Hong Kong are also major centers.
The Bank for International Settlements in Basel, Switzerland, estimates that $1.26 trillion in currency is traded each day, compared with $880 billion in 1992, and $620 billion in 1989.
Who needs currency traders?
Tourists or people who travel overseas need to have currency exchanged. Corporations that export and import goods also need currency traders. If a spice maker, motorcycle manufacturer or computer maker sells its goods to Germany and is paid in marks, it can't pass on the marks to its employees, but must have them exchanged for dollars.
Some currency dealing is similar to the "futures" trading that farmers do to hedge their crops against drought or disaster. In the same way, a company that transacts business in a foreign currency will try to hedge the risk of adverse changes in currency values.
Are currency traders different from speculators and 'hedge fund' operators?
Currency traders think of themselves as people who help keep trade flowing between companies around the world. At times they may speculate, or bet which way a currency will move. But a trader doesn't take a position in a currency for more than a day, and most of his dealing is on behalf of clients.
Speculators, on the other hand, are investors. They look for ways to exploit major market trends. They hold positions in currencies for weeks at a time, and they inject liquidity into the market by buying and selling yen, dollars, marks and francs.
Speculators work hand in hand with "hedge fund" operators, who manage large chunks of money for wealthy individuals and invest it in everything from currencies to copper to stocks.
They can make huge profits by making bets with borrowed money that a currency will rise or fall in six months or a year against another currency.
How big an impact can speculators have on a currency?
Big. Especially on currencies that are not widely circulated, such as Thailand's baht, the ringgit and the Philippine peso. If speculators own large amounts of the currency and they decide to sell, the value of the currency can quickly fall.
How do speculators "attack" a currency?
"Attack" is another word for sell. Speculators might sell a currency because of a country's ballooning deficit, increasing inflation, financial scandal or political turmoil.
When speculators sell at once, they cause the currency to fall.
Is there any way for the country to slow the fall of its currency?
One of the only counterweights to a speculator is for the country's central bank to buy its own currency, thus limiting its supply. But central banks, especially in developing countries, can only afford to buy so much.
How big a deal was last summer's attack on Asian currencies?
"The Thai baht devaluation was the shot heard around the world," says Brian McCarthy, a market analyst with Ruesch International, a Washington-based currency-trading operation.
After currency speculators sold bahts, they targeted the currencies of Indonesia, Singapore and Malaysia. On Oct. 27, fears that problems in Asia would hurt the profits of U.S. companies caused the Dow Jones industrial average to fall 554 points, its biggest single point drop in history.
Why did the speculators target Thailand?
Its economy had been booming, but suddenly it swerved out of control. Gleaming high-rise office towers were empty. Businesses that expanded too fast couldn't pay back bank loans. Interest rates shot up, and the country's government was under attack.
What has happened in Thailand after the attack?
With the baht's value halved against the dollar, exports, from data-processing equipment to frozen shrimp, are far cheaper than they were four months ago. For U.S. consumers that's like a half-off sale at Nordstrom.
But for Thailand, it means that it must export 50 percent more goods and services to break even. It also means that the Mercedes-Benz cars, Rolex watches and Johnny Walker scotch Thais have grown to love have become much more expensive.
Where will the speculators strike next?
India could be a target and so could Brazil. India's government is in shambles, and it has a rising deficit.
Brazil imports more goods than it exports. It has a growing deficit and rising inflation, too. It has been able to hold up under the strain, but the question remains: How long can it keep the speculators at bay?
Pub Date: 12/01/97