GeorgeSoros.pptVIP

George Soros “The Man Who Broke the Bank of England” Presented By: Vaibhav Ajmera Patricia Lopez Sabrina Madhani Shabeena Meghani Nisha Patel Introduction September 16, 1992 British pound forced out of ERM by currency speculators and British ego severely bruised The man who made it happen George Soros, the world’s biggest currency speculator All in a day’s work Took home 1 billion US dollars in profit Setting the Scene Exchange Rate Mechanism Founded in 1979 among 8 European countries Move towards one currency Adjustable peg system to the German mark Largest member of the ERM Bundesbank—Germany’s central bank Ensured stability and flexibility Fluctuation band around central exchange rates Germany-A Brief History 1989—Fall of the Berlin Wall, Reunification Focus on internal political economic problems 1991—Government Spending Skyrockets Causes of Spending Consequences: Central Bank prints MORE MONEY Inflation Stimulates increase in interest rates England-a Brief History Joined ERM in 1990 Benefit from one currency peg “Recession in progress” High unemployment, high interest rates Response to Germany’s increasing interest rate Two options: increase interest rates or devalue Instead, try to defend pound by building reserves International Investors Split Most bet on bank of England Vs. Select few predicted inevitable devaluation George Soros: Strategy Bet $10 billion Short pounds and long in DMs Borrowed pounds from British banks Sold pounds and bought DMs Flooded Forex market with pounds England’s Defense Goal: avoid excess supply of pounds to prevent devaluation Strategy: use accumulated reserves to buy pounds off the market -Spent approx. 15 billion pounds Simple Economics Soros: supply side Bank of England: demand side Tug of war Supply curve shifted to right Forces pound devaluation Soros WINS!! Black Wednesday September 16, 1992 Britain is forced out of ERM Aftermath… Post devaluation: -Soros sells DMs -Buys bac