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[Type the ss
document title] A

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name] In simple terms, it is the interaction of supply
and demand factors for two currencies in the
market that determines the rate at which they
trade. But what factors influence the many
thousands of decisions made each day to buy
or sell a currency? How do changes in supply
and demand conditions explain the path of an
exchange rate over the course of a day, a
month, or a year?
Term Paper Submitted
Course Lecturer
Course Title:
International Financial
University of

Submis Information
Technology & Science

sion --------------------------------

Term Paper Submitted

Nafiz Imtiaz
ID: 10435246
Batch: 29th BBA
In simple terms, it is the interaction of
supply and demand factors for two
currencies in the market that The Purchasing Power Parity
determines the rate at which they Approach:
trade. But what factors influence the
many thousands of decisions made
each day to buy or sell a currency?
Purchasing Power Parity (PPP) theory
How do changes in supply and
holds that in the long run, exchange
demand conditions explain the path of
rates will adjust to equalize the
an exchange rate over the course of a
relative purchasing power of
day, a month, or a year?
currencies. This concept follows from
the law of one price, which holds that
in competitive markets, identical
This complex issue has been goods will sell for identical prices when
extensively studied in economic valued in the same currency.
literature and widely
The law of one price relates to an
discussed among investors, officials, individual
academicians, traders, and others.
Still, there are no definitive answers. product. A generalization of that law is
Views on exchange rate determination the absolute version of PPP, the
differ and have changed over time. No proposition that
single approach provides a
exchange rates will equate nations’
satisfactory explanation of exchange
overall price
rate movements, particularly short-
and medium-term movements, since levels. More commonly used than
the advent of absolute PPP

is the concept of relative PPP, which

focuses on
widespread floating in the early 1970s.

changes in prices and exchange rates,

Three aspects of exchange rate
determination are discussed below.
First, there is a brief description of than on absolute price levels. Relative
some of the broad approaches to PPP holds
exchange rate determination. Second,
there are some comments on the that there will be a change in
problems of exchange rate exchange rates proportional to the
forecasting in practice. Third, central change in the ratio of the two nations’
bank intervention and its effects on price levels, assuming no changes in
exchange rates are discussed. structural relationships. Thus, if the
U.S. price
level rose 10 percent and the should certainly affect exchange rates.
Japanese price level rose 5 percent, PPP is useful in assessing long-term
the U.S. dollar would depreciate 5 exchange rate trends and can provide
percent, offsetting the higher U.S. valuable information about long-run
inflation and leaving the relative equilibrium. But it has not met
purchasing power of the two
currencies unchanged. with much success in predicting
exchange rate movements over short-
and medium-term horizons for widely
traded currencies. In the short term,
PPP is based in part on some PPP seems to apply best to situations
unrealistic assumptions: that goods where a country is experiencing very
are identical; that all goods are high, or even hyperinflation, in which
tradable; that there are no large and
transportation costs, information gaps,
taxes, continuous price rises overwhelm
other factors.
tariffs, or restrictions of trade; and —
implicitly and importantly—that
exchange rates are influenced only by
relative inflation rates. But contrary to The Balance of Payments and the
the implicit PPP assumption, exchange Internal-
rates also can change for reasons
External Balance Approach:
other than differences in inflation
PPP concentrates on one part of the
rates. Real
balance of payments—tradable goods
exchange rates can and do change and services— and postulates that
significantly exchange rate changes are
determined by international
over time, because of such things as differences in prices, or changes in
major shifts in productivity growth, prices, of tradable items.
advances in technology, shifts in
factor supplies, changes in market
structure, commodity shocks,
Other approaches have focused on the
shortages, and booms.

of payments on current account, or on

In addition, the relative version of PPP the balance of payments on current
suffers from measurement problems: account plus long-term capital, as a
What is a good starting point, or base guide in the determination of the
period? Which is the appropriate price appropriate exchange rate. But in
index? How should we account for new today’s world, it is generally agreed
products, or changes in tastes that it is essential to look at the entire
balance of payments—both current
and technology? and capital account

PPP is intuitively plausible and a transactions—in assessing foreign

matter of common sense, and it exchange flows and their role in the
undoubtedly has some validity— determination of exchange rates.
significantly different rates of inflation
John Williamson and others have A METHODOLOGY FOR EXCHANGE

the concept of the “fundamental Oversight of members’ exchange rate

equilibrium policies is at the core of the IMF’s
surveillance mandate. The
exchange rate,” or FEER, envisaged as methodology used for assessing the
the equilibrium exchange rate that appropriateness of current account
would reconcile a nation’s internal and positions and exchange rates for
external balance. In that major industrial countries embodies
four steps:
system, each country would commit
itself to a

macroeconomic strategy designed to ~ applying a trade-equation model to

lead, in the medium term, to “internal calculate the underlying current
balance”—defined as unemployment account positions that would emerge
at the natural rate and minimal at prevailing market exchange rates if
inflation—and to “external balance”— all countries were producing at their
defined as achieving the targeted potential output levels;
current account balance. Each country
would be committed to holding its
exchange rate within a band or target
zone around the FEER, or the level ~using a separate model to estimate a
needed to reconcile internal and normal or equilibrium level of the
external balance during the saving-investment balance consistent
intervening adjustment period. with medium-run fundamentals,
including the assumption that
countries were operating at potential
The concept of FEER, as an equilibrium
exchange rate to reconcile internal
and external balance, is a useful one.
But there are practical ~calculating the amount by which the
exchange rate would have to change,
problems in calculating FEERs. There other things being
is no unique answer to what
constitutes the FEER; depending on equal, to equilibrate the underlying
the particular assumptions, models, current account position with the
and econometric methods used, medium-term saving
different analysts could come to quite
investment norm; and
different results. The authors
recognize this difficulty, and
acknowledge that some allowance
should be made by way of a target ~assessing whether the estimates of
band around the FEER. Williamson has exchange rates consistent with
suggested that FEER calculations medium-term
could not realistically justify exchange
rate bands narrower than plus or fundamentals suggest that any
minus 10 percent. currencies are badly misaligned.
flexible in both the short and long run,
so that PPP holds continuously, that
The IMF, while generally agreeing that capital is fully mobile across national
it is not borders, and that domestic and
foreign assets are perfect substitutes.
possible to identify precise
Starting from equilibrium in the money
“equilibrium” values for exchange
and foreign exchange markets, if the
rates and that point estimates of
U.S. money supply increased, say, 20
notional equilibrium rates should
percent, while the Japanese money
generally be avoided, does use a
supply remained stable, the U.S. price
macroeconomic balance methodology
level, in time, would rise 20 percent
to underpin its internal IMF multilateral
and the dollar would depreciate 20
surveillance. This methodology, which
percent in terms of the yen. In this
is used for assessing the
simplified version, the monetary
“appropriateness” of current account approach combines the PPP theory
positions and exchange rates for with the quantity theory of money—
major industrial countries. increases or decreases in the money
supply lead to proportionate increases
or decreases in the price level over
time, without any permanent
The Monetary Approach:
effects on output or interest rates.
The monetary approach to exchange sophisticated versions relax some of
rate determination is based on the the restrictive assumptions—for
proposition that exchange rates are example, price flexibility and PPP may
established through the process of be assumed not to hold in the short
balancing the total supply of, and the run—but maintain the focus on the
total demand for, the national money role of national monetary policies.
in each nation. The premise is that the
supply of money can be controlled by
the nation’s monetary
Empirical tests of the monetary
approach— simple or sophisticated—
have failed to provide an adequate
authorities, and that the demand for explanation of exchange rate
money has a stable and predictable movements during the floating rate
linkage to a few key variables, period. The approach offers only a
including an inverse relationship to the partial view of the forces influencing
interest rate—that is, the higher the exchange rates—it assumes away the
interest rate, the smaller the demand role of nonmonetary assets such as
for money. bonds, and it takes no explicit account
of supply and demand conditions in
goods and services markets.
In its simplest form, the monetary
Despite its limitations, the monetary
assumes that: prices and wages are approach
offers very useful insights. It highlights term view of exchange rates and
the importance of monetary policy in broadens the
influencing exchange rates, and
correctly warns that excessive focus from the demand and supply
monetary expansion leads to currency conditions for money to take account
of the demand and supply conditions
depreciation. for other financial assets as well.
Unlike the monetary approach, the
portfolio balance approach assumes
that domestic and foreign bonds are
The monetary approach also provides
not perfect substitutes. According to
a basis
the portfolio balance theory in its
for explaining exchange rate simplest form, firms and individuals
overshooting—a balance their portfolios among
domestic money, domestic bonds, and
situation often observed in exchange foreign
markets in
currency bonds, and they modify their
which a policy move can lead to an portfolios as conditions change. It is
initial exchange rate move that the process of equilibrating the total
exceeds the eventual change implied demand for, and supply of, financial
by the new long-term situation. In the assets in each country that
context of monetary approach models determines the exchange rate.
that incorporate short-term stickiness
in prices,

exchange rate overshooting can occur Each individual and firm chooses a
because portfolio to suit its needs, based on a
variety of considerations—the holder’s
prices of financial assets—interest and wealth and tastes, the level of
exchange rates—respond more quickly domestic and foreign interest rates,
to policy moves than does the price expectations of future inflation,
level of goods and services. interest rates, and so on. Any
significant change in the underlying
Thus, for example, a money supply factors will cause the holder to adjust
increase (or decrease) in the United his portfolio and seek a new
States can lead to a greater temporary equilibrium.
dollar depreciation (appreciation) as
domestic interest rates decline (rise) These actions to balance portfolios will
temporarily before the adjustment of influence exchange rates.
the price level to the new long-run
equilibrium is completed and interest
rates return to their original levels.
Accordingly, a nation with a sudden
increase in

money supply would immediately

purchase both domestic and foreign
The Portfolio Balance Approach: bonds, resulting in a decline in both
countries’ interest rates, and, to the
The portfolio balance approach takes a extent of the shift to foreign bonds, a
shorter- depreciation in the nation’s home
currency. Over time, the depreciation the basis of a straight calculation of
in the home currency would lead to PPP, the dollar appeared to be
growth in the nation’s exports and a undervalued in the market (see table
decline in its imports, and thus, to an below). On May 11, 1998 the dollar
improved trade balance and reversal was trading at 1.77 DEM and 132 yen.
of part of the original depreciation. As But to reach parity in PPP terms, the
yet, there is no unified theory of dollar would have had to command
exchange rate determination based on about 15 percent more DEM and about
the portfolio balance approach that 30 percent more yen, using end-1996
has proved reliable in forecasting. In measures of PPP.
fact, results of empirical tests of the
portfolio balance approach do not
compare favorably with those from
The calculations for PPP adjusted for
simpler models. These results reflect
productivity show a different picture.
Some analysts contend that
conceptual problems and the lack of differences in productivity across
adequate countries distort international
comparisons of broad consumption
data on the size and currency baskets used in PPP calculations. The
composition of argument is made that countries such
as Japan with higher productivity in
private sector portfolios. the traded goods sector than in the
non-traded goods sector tend to have
real exchange rate appreciation, which
3.MEASURING THE DOLLAR’S makes their PPP appear to be higher
EQUILIBRIUM VALUE: than it really is; and that there should
be an adjustment for this “productivity
bias.” One such adjustment calculated
by Goldman Sachs suggests that the
A Look at Some Alternatives: dollar was not undervalued in
As the discussion above indicates,
there are various ways of estimating terms, but was overvalued by some 5-
the dollar’s “equilibrium” value, and 15 percent. The third approach has
they can yield a wide range of possible been calculated by Swiss Bank
results. In its 1998 annual report, the Corporation, using FEER, or
Bank for International Settlements fundamental equilibrium exchange
(BIS) looks at three calculations of the rate concepts. This calculation also
dollar’s long-run equilibrium rate, suggests that the dollar was
which can be compared with the overvalued in the market in early 1998
dollar’s market rates. by as much as 20-30 percent against
the DEM and the yen.

The three calculated rates considered

by the BIS are (1) Purchasing Power As noted above, both PPP calculations
Parity (PPP), (2) and FEER calculations can vary on the
basis of the assumptions, models, and
PPP adjusted for productivity, and (3) techniques used. In recent years, the
Fundamental Equilibrium Exchange
Rates (FEER).8 As of mid-May 1998, on
United States has run substantial offers a useful framework for studying
current account deficits—a deficit of exchange rate determination. With its
focus on a broad menu of assets, this
more than $200 billion is expected in approach provides richer insights than
1998—which might suggest an the monetary approach into the forces
overvalued dollar. But the fact that influencing exchange rates. It also
those current account deficits have enables foreign exchange rates to be
been so easily financed by capital seen like asset
inflows may
prices in other markets, such as the
indicate that the dollar is still stock market or bond market, where
considered a bargain at present levels. rates are influenced, not only by
current conditions, but to a great
extent by market expectations of
Estimates of the U.S. Dollar’s future events. As with other financial
Purchasing Power and Fundamental assets, exchange rates change
Equilibrium Value continuously as the market receives
new information—information about
current conditions and information
that affects expectations of the future.
Market Ratea The random character of these asset
price movements does not rule out
Against PPP Purchasing Power PPP rational pricing. Indeed, it is
Adjusted for Equilibrium persuasively argued that this is the
result to be expected in a well-
the Dollar Parity (PPP) Productivity functioning financial market. But in
Exchange Rate such an environment, exchange rate
OECDb Pennc Goldman Sachsd IIE changes can be large and very difficult
SBCd to predict, as market participants try
to judge the expected real rates of
Deutsche return on their domestic assets in
comparison with alternatives in other
mark 1.77 2.02 2.12 1.51 1.45-1.50 currencies.

Japanese yen 132 169 188 124 100 95

How Good Are the Various
On May 11, 1998. Approaches?:

1997 average. The approaches noted above are some

of the most general and most familiar
1992. ones, but there are many others,
focusing on differentials in real
Early 1998. interest rates, on fiscal policies, and
on other elements. The research on
this topic has been of great value in
enhancing our understanding of long-
run exchange rate trends and the
Nevertheless, the portfolio balance issues involved in estimating
approach “equilibrium” rates. It has helped us
understand various aspects of
exchange rate behavior and particular
exchange rate episodes.
The exchange rate is a pervasive and

Yet none of the available empirical mechanism, influencing and being

models has influenced by

proved adequate for making reliable many different forces, with the effects
predictions of the course of exchange and the
rates over a period of time. Research
thus far has not been able to find relative importance of the different
stable and significant relationships influences
between exchange rates and any
continuously changing as conditions
economic fundamentals capable of
change. To
consistently predicting or explaining
short-term rate movements. the extent that trade flows are a force
in the market, competitiveness is
obviously important to the exchange
rate, and the many factors affecting
competitiveness must be considered.
To the extent that the money market
is a factor, the focus should be on
short-term interest rates, and on
monetary policy and other factors
influencing those short-term interest
rates. To the extent that portfolio
capital flows matter, the focus should
2. FOREIGN EXCHANGE be broadened to include bond market
FORECASTING IN PRACTICE conditions and long-term interest
rates. Particularly at times of great
international tension, all other factors
affecting the dollar exchange rate may
Most of the approaches to exchange be overwhelmed by considerations of
rate determination tell only part of the “safe haven.”

the several blindfolded men touching

different Indeed, countless forces influence the
parts of the elephant’s body—and
other, more rate, and they are subject to
continuous and
comprehensive explanations cannot,
in practice, be used for precise unpredictable changes over time, by a
forecasting. We do not yet have a way market that is broad and
of bringing together all of the factors heterogeneous in terms of the
that help determine the exchange rate
in a single comprehensive approach participants, their interests, and their
that will provide reliable short- to time frames.
medium-term predictions.
With conditions always changing, the countless forecasts of its impact in
impact number of basis points.

of particular events and the response

to particular policy actions can vary
greatly with Those who forecast foreign exchange
rates often are divided into those who
the circumstances at the time. Higher use “technical” analysis, and those
interest who rely on analysis of
“fundamentals,” such as GDP,
rates might strengthen a currency or investment, saving, productivity,
weaken it, inflation, balance of payments
position, and the like. Technical
analysis assumes certain short-term
by a small amount or by a lot—much and longer-term patterns in exchange
depends rate movements. It differs from the
“random walk” philosophy—the belief
on why the interest rates went up, that all presently available information
whether a move was anticipated, what has been absorbed into the present
subsequent moves are expected, and exchange rate, and that the next
the implications for other financial
markets, decisions, or government
policy moves. Similarly, the results of
exchange rate changes are not always
predictable: Importers might expect to
pay more if their domestic currency
depreciates, but not if foreign
producers are “pricing to market” in
order to establish a beachhead or ASSESSING FACTORS THAT MAY
maintain a market share, or if the INFLUENCE EXCHANGE RATES
importers or exporters had anticipated
the rate move and had acted in
advance to protect themselves from it. In the end, it is up to each market
participant to decide, in each
particular situation, which factors are
Nonetheless, those participating in the likely or not likely to move an
market must make their forecasts, exchange rate, and what the impact
implicitly and explicitly, day after day, on market expectations will be. It is a
all of the time. Every piece of matter of judgment; market
information that becomes available participants must read the market,
can be the basis for an adjustment of decide which data are important, how
each participant’s viewpoint, or much weight to give them, and
expectations—in other words, a whether and in what way to react—
forecast, informal or otherwise. When and often these assessments must be
the screen flashes with an unexpected made very quickly. Among the
announcement that, say, Germany has considerations to keep in mind in
reduced interest rates by a quarter of assessing a new piece of information:
one percent, that is not just news, it is
the basis for countless assessments of
the significance of that event, and 1. The Institutional Setting
* Does the currency float, or is it * What are the thinking and
managed—and if so, is it pegged to expectations of other market players
another currency, and analysts?

basket, or other standard?

* What are its intervention practices? piece of information as well as the

Are they credible, sustainable? direction of Nearly all traders
acknowledge their use
2. Fundamental Analysis
the next rate move is random, with a
* Does the currency appear 50 percent of technical analysis and
overvalued or undervalued in terms of charts. According chance the rate will
PPP, balance of rise, and 50 percent chance to
surveys, a majority say they employ
payments, FEER?
technical it will decline. analysis to a
* What is the cyclical situation, in greater extent than “fundamental”
terms of employment, growth, analysis, and that they regard it as
savings, investment, and inflation? more useful than fundamental analysis
—a contrast to twenty years ago when
* What are the prospects for most said they relied many more
government monetary, fiscal, and debt heavily on fundamental analysis.
policy? Perhaps traders use technical analysis
in part because, at least superficially,
3. Confidence Factors it seems simpler, or because the data
are more current and timely. Perhaps
* What are market views and they use it because traders often have
expectations with respect to the a very short-term time frame and are
political environment, and the interested in very short-term moves.
They might agree that “fundamentals”
credibility of the government and
determine the course of prices in the
central bank?
long run, but they may not regard that
4. Events as relevant to their immediate task,
particularly since many “fundamental”
* Are there national or international data become available only with long
incidents in the news; possibility of lags and are often subject to major
crises or revisions. Perhaps traders think
technical analysis will be effective in
emergencies; governmental or other part because they know many other
important meetings coming up? market participants are relying on it.
5. Technical Analysis

* What trends do the charts show? Are Still, spotting trends is of real
there signs of trend reversals? importance to traders—“a trend is a
friend” is a comment
* At what rates do there appear to be
important buy and sell orders? Are
they balanced? Is the market over-
bought, over-sold? often heard—and technical analysis
can add
some discipline and sophistication to reserves is offset by monetary policy
the process of discovering and action.
following a trend. Technical analysis
may add more objectivity to making No one questions that monetary policy
the difficult decision on when to give measures can influence the exchange
up on a position—enabling one to see rate by
that a trend has changed or run its
affecting the relative attractiveness of
course, and it is now time for
a currency and expectations of its
prospects, although it is difficult to
find a stable and significant
relationship that would yield a
Most market participants probably use predictable, precise response. But the
a combination of both fundamental question of the effectiveness of
and technical analysis, with the sterilized intervention, which has been
emphasis on each shifting as extensively studied and debated, is
conditions change—that is, they form much more controversial. Some
a general view about whether a economists contend that sterilized
particular currency is overvalued or intervention can have, at best, a
undervalued in a structural or longer- modest and temporary effect. Others
term sense, and within that longer- say it can have a more significant
term framework, assess the order flow effect by changing expectations about
and all current economic forecasts, policy and helping to guide the
news events, political developments, market. Still others believe that the
statistical releases, rumors, and effect depends on the particular
changes in sentiment, while also market conditions and the intervention
carefully studying the charts and strategy of each situation. Given the
technical analysis. present size of U.S. monetary
aggregates, balance of payments
flows, and the levels of activity in the
foreign exchange market and other
financial markets, it is widely
accepted that any effects of sterilized
As in some other major industrial intervention are likely to be through
nations with indirect channels rather than through
direct impact on these large
floating exchange rate regimes, in the aggregates. Empirical tests of
United States there is considerable sterilized intervention have focused on
scope for the play of market forces in two main channels through which such
determining the dollar exchange rate. intervention
But also, as in other countries, U.S.
authorities do take steps at times to might indirectly influence the
influence the exchange rate, via policy exchange rate:
measures and direct intervention in
the foreign exchange market to buy or
sell foreign currencies. As noted the portfolio balance channel and the
above, in practice, all foreign expectations, or signaling, channel.
exchange market intervention of the The portfolio balance channel
U.S. authorities is routinely sterilized— postulates that the exchange rate is
that is, the initial effect on U.S. bank determined by the balance of supply
and demand for available stocks of significance. Others conclude that the
financial assets held by the private effectiveness
sector. It holds that sterilized
intervention will alter the currency depends very much on market
composition of assets available to the conditions and
global private sector, and that if dollar
intervention strategy.
and foreign currency-denominated
assets are viewed by investors as
imperfect substitutes, sterilized
intervention will cause movements in
the exchange rate to re-equilibrate
supply and demand for dollar assets. There are serious data and
The size of this portfolio balance effect econometric problems in studying this
would depend on the degree of question. To assess success, the
substitutability between assets researcher needs to know the
denominated in different currencies objective of the intervention and other
and on the size of the intervention specific details—was the aim to
operation. ameliorate a trend, stop a trend,
reverse a trend, show a presence,
calm a market, discourage
speculation, or buy a little time?
The expectations, or signaling,
channel holds that sterilized The researcher also needs to know the
intervention may cause private agents
to change their expectations of the counterfactual—what would have
future path of the exchange rate. happened if the
Thus, intervention could signal
information about the future course of intervention had not taken place.
monetary or other economic policies,
Also, research on this issue must be
signal information about, or analysis
placed in the broader context of
of, economic fundamentals or market
research on exchange rate
trends, or influence expectations by
determination, which, as noted above,
affecting technical conditions such as
indicates that it has not been possible
bubbles and bandwagons.
to find stable and significant
relationships between exchange rates
and any economic fundamentals.
A considerable number of studies have

no quantitatively important effects of As a practical matter, it is difficult to

sterilized make sweeping assessments about
the success or failure of official
intervention through the portfolio intervention operations. Some
balance intervention operations have proven
resoundingly successful, while others
channel. Some studies have found have been dismal failures. The
expectations success or failure of intervention is not
so much a matter of statistical
or signaling effects of varying degrees probability as it is a matter of how it is
of used and whether conditions are
appropriate. Is the objective
reasonable? Does
Exchange rate misalignments can
the market look technically heighten uncertainty in the global
responsive? Is intervention economy and can be
anticipated? Will an operation look
detrimental to growth and trade.
credible? What is the likely effect on When exchange rates appear to move
expectations? out of line with underlying
fundamentals, close monitoring is
necessary and coordinated responses
may be required.
In 1983, the Working Group on Foreign
Exchange Market Intervention
established at the Versailles summit of
the Group of Seven warned against We should continue our close
expecting too much from official cooperation in exchange markets in
intervention, but concluded that such this foundation, taking into
intervention can be a useful and
effective tool in influencing exchange account the fact that:
rates in the short run, especially when
--A clear and consistent articulation of
such operations are consistent with
a common G7 view can have a
fundamental economic policies.
stabilizing influence and help reinforce
Unquestionably, intervention
the credibility of our commitment to
operations are
cooperate in the exchange market
more likely to succeed when there is a when circumstances warrant;
consistency with fundamental
economic policies, but it may not
always be possible to --interventions can be effective in
certain circumstances, especially
know whether that consistency exists.
when they reinforce changes in
Although attitudes differ, monetary
policies and/or underlying
authorities in all of the major countries
fundamentals that lead to changes in
intervene in the foreign exchange
market expectations about future
markets at times when they consider
exchange rates;
it useful or appropriate, and they are
likely to continue to do so. The current
attitude toward foreign exchange
market intervention is summarized in --the instrument of intervention must
the following excerpt from the be used judiciously, given its
implications for monetary policy and
June 1996 report of the finance the amount that the authorities can
ministers of the Group of Seven mobilize relative to the size of
nations: international capital markets.
Nevertheless, these factors do not
impede our joint ability to send a clear
CONTINUING CLOSE G7 message to the markets, if and when
-- interventions are more likely to be
effective when they are concerted and
reflect a common assessment.