Asian Currency Trading Has Few Chances for Profit, Dealers Say

Trading in the currencies of the four newly industrializing countries offers little opportunity for profit, despite calls by the United States for the NICs to allow their currencies to appreciate, international currency dealers say.

Traders gathered here for an annual meeting that ended over the weekend said that while the economies of the NICs--South Korea, Singapore, Taiwan and Hong Kong--have boomed, their exchange rates have been tightly controlled by their central banks.

“There is no way to speculate in these currencies. They don’t move quickly enough,” a Singapore-based dealer said.

Under pressure from the United States, the South Korean currency, the won, has been rising against the dollar at an annual rate of 15% but is fixed every day by the central bank. Non-residents are not allowed to trade in the Korean currency, a dealer at a leading Korean bank said.

The Taiwan government fixes its currency mostly in line with the dollar, while the Hong Kong dollar also is fixed to the U.S. dollar, wiping out any advantage in speculating in those currencies, dealers said.

If anything, a Hong Kong dealer said, “there is maybe one chance a year,” to make money in Hong Kong dollar trading.

There is more chance to profit from Hong Kong dollar interest rate changes because the authorities often adjust rates in order to balance supply of the Hong Kong unit, he said.

The Singapore dollar is supposed to be allowed to trade freely, but the Monetary Authority of Singapore polices any significantly large currency transactions, frightening dealers away from speculation, the Singapore dealer said.

One way for dealers to cash in on the Singapore dollar is to participate in a large commercial order when Singapore Airlines buys a new aircraft from the U.S. jet makers. The scale of this transaction can often cause local currency fluctuations, he said.

While bank foreign exchange departments have little chance to profit directly from trading in the NIC currencies, opportunities are open to some corporations, dealers said.

In the case of the Taiwan dollar, one practice is to buy a Taiwan company and sell it some months later when the local currency has appreciated, Asian dealers said.

Even in the case of the tightly-controlled South Korean won, companies can cash in on the won’s advance, Korean bank dealers said.

They said a U.S. company can lend dollars to a U.S. branch of a Korean firm while at the same time the U.S. company’s Korean branch borrows an equivalent amount of won from the parent firm in Seoul.

If the won rises against the dollar, the Korean branch of the U.S. company pays back the loan. At the same time, the U.S. branch of the Korean firm pays back the equivalent dollar amount of the won loan at a higher won exchange rate. Thus a larger dollar amount is repaid to the U.S. parent company, a Korean dealer said.