Foreign Exchange

Factors affecting currency trading
Although exchange rates are affected by many factors, in the end, currency prices are a result of supply and demand forces. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange. Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions, and market psychology.

Foreign Exchange
These include economic policy, disseminated by government agencies and central banks, economic conditions, generally revealed through economic reports, and other economic indicators. Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and  "cost" of money, which is reflected by the level of interest rates).

Economic conditions include:
• Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.
• Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.
• Inflation levels and trends: Typically, a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency.
• Economic growth and health: Reports such as gross domestic product (GDP), employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.

Political conditions
Internal, regional, and international political conditions and events can have a profound effect on currency markets. For instance, political upheaval and instability can have a negative impact on a nation's economy. The rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.

Market psychology
Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:
• Flights to quality: Unsettling international events can lead to a "flight to quality," with investors seeking a "safe haven". There will be a greater demand, thus a higher rice, for currencies perceived as stronger over their relatively weaker counterparts.
• Long-term trends: Currency markets often move in visible long-term trends.Although currencies do not have an annual growing season like physical ommodities, business cycles do make themselves felt. Cycle analysis looks at onger-term price trends that may rise from economic or political trends.
• "Buy the rumor, sell the fact:" This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market  being "oversold" or "overbought". To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
• Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number it becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation  numbers have all taken turns in the spotlight.
• Technical trading considerations: As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns

Financial instruments
There are several types of financial instruments commonly used.

• Spot
  A spot transaction is a two-day delivery transaction, as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot has the largest share by volume in FX transactions among all instruments.
  
• Forward
  One way to deal with the Forex risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months, or years.
  
• Future
  Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, 500,000 British pounds for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.
  
• Swap
  The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.
  
• Option
  A foreign exchange option (commonly shortened to just FX option) is a derivative where  the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world.
  
• Speculation
  Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, many economists (e.g. Milton Friedman) have argued that speculators perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists (e.g. Joseph Stieglitz) however, may consider this argument to be based more on politics and a free market philosophy than on economics.
  Large hedge funds and other well capitalized "position traders" are the main professional speculators. Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not, according to this view; it is simply gambling, that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 150% per annum, and later to devalue the krona.
  Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators. Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.
  In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex speculators made the inevitable collapse happen sooner.
  A relatively quick collapse might even be preferable to continued economic mishandling Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from them for having caused the unsustainable economic conditions.
  

Financial Crimes

What is Money Laundering?
Defined in non-technical terms, money laundering is the conversion of 'dirty' money into - seemingly - 'clean' money. Dirty money is money that meets the following conditions: (1) it has been derived by illegal means and (2) for an outside observer it is possible to identify that condition (1) applies. Money laundering is the practice of engaging in financial transactions in order to conceal the identity, source, and/or destination of money, and is a main operation of the underground economy. In the past, the term "money laundering" was applied only to financial transactions related to organized crime. Today its definition is often expanded by government regulators to encompass any financial transaction which generates an asset or a value as the result of an illegal act, which may involve actions such as tax evasion or false accounting. As a result, the illegal activity of money laundering is now recognized as potentially practiced by individuals, small and large businesses, corrupt officials, members of organized crime (such as drug dealers or the Mafia) or of cults, and even corrupt states, through a complex network of shell companies and trusts based in offshore tax havens. The increasing complexity of financial crime, the increasing recognized value of so-called "financial intelligence" in combating transnational crime and terrorism, and the speculated impact of capital extracted from the legitimate economy has led to an increased prominence of money laundering in political, economic, and legaldebate.

Process of Money Laundering
Money laundering is often described as occurring in three stages: placement, layering, and integration.  Placement: refers to the initial point of entry for funds derived from criminal activities. Layering: refers to the creation of complex networks of transactions which attempt to obscure the link between the initial entry point, and the end of the laundering cycle. Integration: refers to the return of funds to the legitimate economy for later extraction. The Anti Money Laundering Network Recommends the Terms
1. Hide: to reflect the fact that cash is often introduced to the economy via commercial concerns which may knowingly or not knowingly be part of the laundering scheme, and it is these which ultimately prove to be the interface between the criminal and the financial sector.
2. Move: clearly explains that the money launderer uses transfers, sales and purchase of assets, and changes the shape and size of the lump of money so as to obfuscate the trail between money and crime or money and criminal.
3. Invest: the criminal spends the money: he/she may invest it in assets, or in his/her lifestyle.

Can Legal Considerations Stop Money Laundering?
Many jurisdictions adopt a list of specific predicate crimes for money laundering prosecutions as a "self launderer”. In addition, laws typically have other offences such as "tipping off," "willful blindness," not reporting suspicious activity, and conscious facilitation of a money launderer/terrorist financier to move his/her monies.
Financial Institutions & Fight against Money Laundering The prime method of anti-money laundering is the requirement on financial intermediaries to know their customers - usually termed KYC (know your customer) requirements. With good knowledge of their customers, financial intermediaries will often be able to identify unusual or suspicious behavior, including false identities, unusual transactions, changing behavior, or other indicators that laundering may be occurring. But for institutions with millions of customers and thousands of customer-contact employees, traditional ways of knowing their customers must be supplemented by technology.

Why Launder Dirty Money at All?
Basically there are two motives for laundering money: avoiding suspicion and avoiding detection. Avoiding suspicion refers to the need to remove all traces that may indicate a crime has been committed - such as dirty money. Avoiding detection refers to the need to shield the money from attempts to confiscate it. If you are not entitled to own or dispose of money or assets someone may take it away!

What do to against money laundering?
Usually one distinguishes between preventive and repressive measures which are complementary rather than mutually exclusive. Preventive measures aim at denying criminals the access to the financial system and tend to rely heavily on the private sector's cooperation. The international standard model envisages that financial institutions identify their customers and keep records, maintain internal compliance programs and actively cooperate with the designated authorities by reporting suspicions of money laundering. The idea of course is that vital information is thereby transmitted from the private sector players that are being 'misused' for money-laundering purposes to the law enforcement agencies.
Repressive measures on the other hand are instituted to facilitate prosecution or to have more effective sanctions at hand. Thus, among the repressive measures we find attempts to facilitate international legal cooperation and asset forfeiture or money laundering provisions in the penal code.

Terrorist Financing
Terrorist financing is a topic that shot into the limelight after the events of September 11, 2001. The US passed the USA PATRIOT Act, among other reasons, to ensure that both combating the financing of terrorism and anti-money laundering was given adequate focus by US financial institutions.
The act also had extra-territorial impact and non-US banks having correspondent banking accounts or doing business with US banks had to upgrade their Anti-Money Laundering processes. Although efforts have brought about a huge change to global regulations and have ushered in a new era of information sharing. According to US Government, Islamic charities, which were prime sponsors of terrorist groups around the world, are now under much tighter controls albeit there is still a lot to do in the Middle East and specially  Pakistan. Terrorist groups are on the run albeit they are also innovating – in making/moving monies and in hiring of their key operatives - the new terrorist is a western educated middle class technology savvy person and the source for getting information on a do-it-yourself bomb is the internet.

The future of terrorist financing in Pakistan
Looking into the near future, if terrorist groups are replaced by smaller, decentralized  groups, the premise that terrorists need a financial support network may become outdated. Moreover, some terrorist operations do not rely on outside sources of money and may now be self-funding, either through legitimate employment or low-level criminal activity, for example, the 7/7 London 9/11 US terrorists .

How we can trapped Terrorist Finances
1. Bilateral and multilateral diplomacy;
2. Law enforcement and intelligence cooperation;
3. Public designations of terrorists and their supporters for asset-freeze actions;
4. Technical assistance; and
5. Concerted international action through multilateral organizations and groups, notably the anti-money Laundering departments and the United Nations. US assistance to control Money Laundering in Pakistan South Asia, and especially Pakistan, is a priority region for counterterrorist financing, due to the presence of terrorist groups, porous borders, and cash-based economies that often operate through informal mechanisms. All countries in the region need to improve their terrorist financing regimes to meet international standards, including the establishment of functioning Financial Intelligence Units. And both political will and technical assistance are needed to make this region a more effective partner of established countries. Pakistan, specifically, US welcome the concrete actions it has taken to implement its obligations under UN Security Council Resolutions, including the freezing of over $10 assets. Pakistan has also apprehended terrorists, including big names of operational leaders. US, European Union are encouraged by Pakistan's concern about the money laundering & infiltration of terrorist groups into charitable organizations, and would welcome the opportunity to provide technical assistance to help Pakistan meet international standards on preventing abuse of its non-profit sector. US has provided Pakistan assistance on drafting an antimoney laundering/ counterterrorist financing (AML) law that meets international standards, but this legislation is still awaiting parliamentary consideration. In the absence of an antimoney laundering and counterterrorism financing law, the State Bank of Pakistan has introduced FATF-compliant regulations in know-your- customer policy, record retention, due diligence of correspondent banks, and reporting suspicious transactions. Also in compliance with FATF recommendations, the Securities and Exchange Commission of Pakistan has applied know-your-customer regulations to stock exchanges, trusts, and other non-bank financial institutions. All settlements exceeding Rs 50,000 ($840) must be performed by check or bank draft, as opposed to cash. Speaking generally, South Asian countries lack sophisticated tools to combat the money laundering. Anti-money laundering programs also tend to be absent or not up to international standards. Nonetheless, there is a degree of interest in all countries of the region, and we have seen some progress.
Know Your Customer (KYC) Guidelines – Anti Money Laundering Standards The objective of KYC guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering activities. KYC procedures also enable banks to know/understand their customers and their financial dealings better which in turn help them manage their risks prudently.

Banking Fraud & Misleading Activities

Bank fraud is a federal crime in many countries, defined as planning to obtain property or money from any federally insured financial institution. It is sometimes considered a white-collar crime.

• Rogue Traders
A rogue trader is a highly placed insider nominally authorized to invest sizeable funds on behalf of the bank; this trader secretly makes progressively more aggressive and risky investments using the bank's money, when one investment goes bad, the rogue trader engages in further market speculation in the hope of a quick profit which would hide or cover the loss. Unfortunately, when one investment loss is piled onto another, the costs to the bank can reach into the hundreds of millions of dollars; there have even been cases in which a bank goes out of business due to market investment losses.

• Fraudulent Loans
One way to remove money from a bank is to take out a loan, a practice bankers would be more than willing to encourage if they know that the money will be repaid in full with interest. A fraudulent loan, however, is one in which the borrower is a business entity controlled by a dishonest bank officer or an accomplice; the "borrower" then declares bankruptcy or vanishes and the money is gone. The borrower may even be a non-existent entity and the loan merely an artifice to conceal a theft of a large sum of money from the bank.

• Wire Fraud
Wire transfer networks such as the international SWIFT inter-bank fund transfer system are tempting as targets as a transfer, once made, is difficult or impossible to reverse. As these networks are used by banks to settle accounts with each other, rapid or overnight wire transfer of large amounts of money is commonplace; while banks have put checks and balances in place, there is the risk that insiders may attempt to use fraudulent or forged documents which claim to request a bank depositor's money be wired to another bank, often an offshore account in some distant foreign country.

• Forged or Fraudulent Documents
Forged documents are often used to conceal other thefts; banks tend to count their money meticulously so every penny must be accounted for. A document claiming that a sum of money has been borrowed as a loan, withdrawn by an individual depositor or transferred or invested can therefore be valuable to a thief who wishes to conceal the minor detail that the bank's money has in fact been stolen and is now gone.

• Uninsured Deposits
There are a number of cases each year where the bank itself turns out to be uninsured or not licensed to operate at all. The objective is usually to solicit for deposits to this uninsured "bank", although some may also sell stock representing ownership of the "bank".Sometimes the names appear very official or very similar to those of legitimate banks. For instance, the "Chase Trust Bank" of Washington DC appeared in 2002 with no license and no affiliation to its seemingly apparent namesake; the real Chase Manhattan Bank is based in New York. There is a very high risk of fraud when dealing with unknown or uninsured institutions. The risk is greatest when dealing with offshore or Internet banks (as this allows selection of countries with lax banking regulations), but not by any means limited to these institutions.

• Theft of Identity
Dishonest bank personnel have been known to disclose depositors' personal information for use in theft of identity frauds. The perpetrators then use the information to obtain identity cards and credit cards using the victim's name and personal information.

• Demand Draft Fraud
Demand draft fraud is usually done by one or more dishonest bank employees. They remove few DD leaves or DD books from stock and write them like a regular DD. Since they are insiders, they know the coding, punching of a demand draft. These Demand drafts will be issued payable at distant town/city without debiting an account. Then it will be cashed at the payable branch. For the paying branch it is just another DD. This kind of fraud will be discovered only when the head office does the branch-wise reconciliation, which normally will take 6 months. By that time the money is unrecoverable.

• Stolen Cheques
Some fraudsters obtain access to facilities handling large amounts of cheques, such as a mailroom or post office or the offices of a tax authority (receiving many cheques) or a corporate payroll or a social or veterans' benefit office (issuing many cheques). A few cheques go missing; accounts are then opened under assumed names and the cheques (often tampered or altered in some way) deposited so that the money can then be withdrawn by thieves. Stolen blank cheque-books are also of value to forgers who then sign as if they were the depositor.

• Accounting Fraud
In order to hide serious financial problems, some businesses have been known to use fraudulent bookkeeping to overstate sales and income, inflate the worth of the company's assets, or state a profit when the company is operating at a loss. These tampered records are then used to seek investment in the company's bond or security issues or to make fraudulent loan applications in a final attempt to obtain more money to delay the inevitable collapse of an unprofitable or mismanaged firm.

• Stolen Credit or Debit Cards
Often, the first indication that a victim's wallet has been stolen is a 'phone call from a credit card issuer asking if the person has gone on a spending spree; the simplest form of this theft involves stealing the card itself and charging a number of high-ticket items to it in the first few minutes or hours before it is reported as stolen. A variant of this is to copy just the credit card numbers (instead of drawing attention by stealing the card itself) in order to use the numbers in online frauds.

• Fraudulent Loan Applications
These take a number of forms varying from individuals using false information to hide a credit history filled with financial problems and unpaid loans to corporations using accounting fraud to overstate profits in order to make a risky loan appear to be a sound
investment for the bank.

Can We Avoid Cheque Fraud?
1. Reconcile your account; Reconcile your cheque account promptly and regularly. If you hold business accounts, consider opening a separate account specifically for higher value cheques, so they can be easily monitored.
2. Signing of Cheques; Never sign blank cheques, only sign cheques after all details have been completed.
3. Preparation; Cheques must be completed in a way that deters fraudulent alternation. Ensure that a strong bold and consistent font is used and that no gaps are left in completion of the payee name, amount in words and in figures. Use permanent ballpoint or ink (preferably black) when filling out a cheque.
4. Ordering and maintaining cheques; If cheques are lost or stolen contact your bank immediately and ask them to load a ‘Stop Payment’. Notify bank, if you have not received an ordered cheque book. Protect your credit / debit card Save your personal identification number (PIN). Don't use the same PIN for different cards or equipment, and don't choose your birth date or any other easily identifiable number that might be on something else in your wallet. Check statements and call your credit card issuer immediately if you see anything suspicious on your bill. You could help the company uncover fraud—and save yourself from paying un-authorized charges. Keep track of when new and reissued cards should arrive, and call the credit card issuer if they don't come on time. Make sure your mailbox is secure, and that only you and the postal carrier have access to it. When you use your credit card online, make sure you are using a secure website. Look for a small key or lock symbol at the bottom right of your browser's window. Never give your card number to strangers or telemarketers who call you on the phone. Don't give your card number unless you initiated the call.

Classic Financial Scandals

"Bankers who hire money hungry geniuses should not always express surprise and amazement when some of them turn around with brilliant, creative, and illegal means of making money." “The quotation is from a speech by the financial thriller writer on the Psychology of Risk, Speculation and Fraud, at a conference on EMU in Amsterdam. Barings Bank collapsed when one of the Singapore based employees of London's Barings Bank, Nick Leeson, lost £827 million (US$1.4 billion) - primarily on futures contract speculation. Leeson's actions led the oldest merchant bank to default on its debts. The bank's collapse is considered a pivotal turning point in the history of banking and has become a textbook example of accounting fraud.

Internal auditing
The way that Barings Bank's activities in Singapore were organized between 1992 and 1995 enabled Leeson to operate effectively without supervision from Barings Bank's head office in London. Leeson acted both as head of settlement operations (charged with ensuring accurate accounting) and as floor manager for Barings' trading on Singapore International Monetary Exchange (SIMEX). Normally the positions would have been held by two employees. This concentration of functions placed Leeson in the position of reporting to an office inside the bank which he himself held. Several observers, including Leeson, placed much of the blame on the bank's own deficient internal auditing and risk management practices.

Corruption
Because of the absence of oversight, Leeson was able to make seemingly small gambles in the futures market at Barings Futures Singapores (BFS) and cover for his shortfalls by reporting losses as gains to Barings in London. Specifically, Leeson altered the branch's error account, subsequently known by its account number 88888 as the "five-eight account," to prevent the London office from receiving the standard daily reports on trading, price, and status. Leeson claims the losses started when one of his colleagues bought contracts when she should have sold them. By December 1994 Leeson had cost Barings £200 million but he reported to British tax authorities a £102 million profit. If the company had uncovered his true financial dealings then, collapse might have been avoided as Barings had capital of £350 million

Kobe earthquake
Using the hidden "five-eight account," Leeson began to aggressively trade in futures and options on SIMEX. His decisions routinely lost substantial sums, but he used money entrusted to the bank by subsidiaries for use in their own accounts. He falsified trading records in the bank's computer systems, and used money intended for margin payments on other trading. Barings Bank management in London at first congratulated and rewarded Leeson for what seemed to be his outstanding trading profits. However, his luck ran out when the Kobe earthquake sent the Asian financial markets into a tailspin. Leeson bet on a rapid recovery by the Nikkei Stock Average which failed to materialize.

Discovery
Appointed administrators began managing the finances of Barings Group and its subsidiaries on 26 February 1995. On 26 February, the Board of Banking Supervision launched an investigation led by Britain's Chancellor of the Exchequer. released his report on 18 July. By 27 February, Leeson had cost the bank £827 million. The collapse itself cost the bank another £100 million. Barings Bank auditors finally discovered the fraud, around the same time that Chairman Peter Barings received a confession note from Leeson, but it was too late. Leeson's activities had generated losses totaling £827 million (US$1.4 billion), twice the bank's available trading capital. The Bank of England attempted a weekend bailout but it was unsuccessful. Barings was declared insolvent 26 February 1995. The collapse was dramatic and employees around the world were denied their bonuses

Aftermath
ING, a Dutch bank, purchased Barings Bank for the nominal sum of £1 and assumed all of Barings liabilities. Barings Bank therefore no longer has a separate corporate existence, although the Barings name still lived on as Baring Asset Management. BAM was split and sold by ING to Mass Mutual and Northern Trust in March 2005. Nick Leeson fled Singapore but was arrested in Germany and extradited back to Singapore, where he was convicted of fraud and imprisoned for six years. Upon release, he wrote an autobiography, Rogue Trader, covering the events leading up to the collapse. A film maker later dramatized the book in the film Rogue Trader.

Black Wednesday
In British politics and economics, Black Wednesday refers to 16 September 1992 when the Conservative government was forced to withdraw the Pound from the European Exchange Rate Mechanism (ERM) due to pressure by currency speculators—most notably George Soros who made over US$1 billion from this speculation. In 1997 the UK Treasury estimated the cost of Black Wednesday at £3.4 billion.
The trading losses in August and September were estimated at £800m, but the main loss to taxpayers arose because the devaluation could have made them a profit. The papers show that if the government had maintained $24bn foreign currency reserves and the pound had fallen by the same amount, the UK would have made a £2.4bn profit on sterling's devaluation (Financial Times 10 February 2005). The papers also show that the Treasury spent £27bn of reserves in propping up the pound; the Treasury calculates the ultimate loss was only £3.4bn.

The currency speculators' attack
The fundamental sterling problem in September 1992 was that the dollar was rapidly depreciating against the deutschmark. Tied as it was to the ERM, the pound was hence appreciating to unsustainable levels against the US currency. With a large proportion of British exports priced in dollars, a pound/dollar correction was well overdue. ERM membership was preventing this from happening. In anticipation of the inevitable dambursting, speculators hastened the process by borrowing pounds (and also lire) and selling them for DM, in the expectation of being able to repay the loan in devalued currency and to pocket the difference.
On September 16 the British government announced a rise in the base interest rate from an already high 10% to 12% in order to tempt speculators to buy pounds. Despite this and a promise later the same day to raise base rates again to 15%, dealers kept selling pounds, convinced that the government would not stick with its promise. By 19:00 that evening, Norman Lamont, then Chancellor, announced Britain would leave the ERM and rates would remain at the new level of 12%. EU economists' analysis of this event concluded that stable exchange rates are the result, not the cause, of a common approach to economic management, resulting in the Stability and Growth Pact that underpins ERM II and subsequently the Euro single currency.

Treasury bond Scandal  “Saloman Brothers”
Salomon Brothers was a Wall Street investment bank. Founded in 1910, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm then known as Phibro Corporation. This proved a "wag the dog" type merger as the parent company became first Phibro-Salomon and then Salomon Inc. and the commodity operations were sold. Eventually Salomon was acquired by Travelers Group (now Citigroup) in 1998.
It eventually became the largest issuer and trader of bonds in the United States, its PR man defining a liquid bond as any bond traded by Salomon Brothers. During its time of greatest prominence in the 1980s, Salomon became noted for its innovation in the bond market, creating the first mortgage-backed security. Later, it moved away from traditional investment banking (helping companies raise funds in the capital market and negotiating mergers and acquisitions) to almost exclusively proprietary trading (the buying and selling of stocks, bonds, options, etc. for the profit of the company).
Salomon had an expertise in fixed income trading, betting large amounts of money on certain swings in the bond market on a daily basis. The top bond traders called themselves "Big Swinging Dicks", and were the inspiration for the books The Bonfire of the Vanities and Liar's Poker. During this period however the performance of the firm was not to the satisfaction of its upper management. The amount of money being made relative to the amount being invested in all the markets Salomon was in was small, and the company's traders were paid in a flawed way which was disconnected from their true profitability (fully accounting for both the amount of money they used and the risk they took). There were debates as to which direction the firm should head in, whether it should prune down its activities to focus on  certain areas. For example, the commercial paper business (providing short term day to day financing for large companies), was apparently unprofitable, although some in the firm argued that it was a good activity because it kept the company in constant contact with other businesses' key financial personnel. It was decided that the firm should try to imitate Drexel Burnham Lambert, using its Investment Bankers and its own money to urge companies to restructure or engage in leveraged buyouts which would result in financing business for Salomon Brothers. The first moves in this direction were for the firm to compete on the leveraged buyout of RJR Nabisco, followed by the leveraged buyout of Revco stores (which ended in failure).

Defining Needs

Decisions are required to be taken in day to day life. No single task in our life can be done without decision making. For every assignment we undertake, there has to be a process of making choices. Whenever we are faced with choices, there is an inevitable need of selecting one particular course of action. Any task can be done in various ways, but doing it simultaneously through all possible alternatives is virtually impossible. This necessitates making a reasonable choice from all the options available.
An example can be taken for a person who wants to go to Islamabad. He can look at following options.
• Use any of the local bus service available
• Go by train
• Travel by air
As you can see, the decision to be made in this situation is faced with the availability of a set of combination of alternatives.
• Every decision we take in daily life requires some sort of information about the alternatives available. For instance, in the above example certain factors need to be considered before taking a decision.
• How urgent it is to reach to Islamabad
• How much time is available to accommodate travelling, since each mode of travelling will take different time to reach at the same destination?
• Whether bookings are available for the desired day and time.
• Is there any possibility of cancellation of booking or flight or bus service.
• Which bus service or airline to chose from, since various airlines and bus services are having travelling facilities to Islamabad.
• Without the availability of relevant information, we may take a decision which is wrong or not to our benefit. For instance if the person does not have complete knowledge of facts he might not be able to take the right decision.
• Similar is the case with business. Businesses are run by organizations which are in-fact a group of people. As individuals have choices to choose from, organizations also face various alternatives in day to day operations, Decisions are made by individuals from the management.

Need for information
Information is required in day to day decision making. Without the availability of right quantity of information at the right time, the process of decision making is highly affected. For this reason various
sources of information are used to extract information. Some of these are:
o Newspapers
o Internet
o Marketing Brochures
o Friends & Relatives

Sources of Information
Sources of information are generally categorized as primary, secondary or tertiary depending on their originality and their proximity to the source or origin. For example, initially, findings might be communicated informally by email and then presented at meetings before being formally published as a primary source. Once published, they will then be indexed in a bibliographic database, and repackaged and commented upon by others in secondary sources.
The designations of primary, secondary and tertiary differ between disciplines or subjects, particularly between what can generally be defined as the sciences and the humanities. For example,
• The historian’s primary sources are the poems, stories, and films of the era under study.
• The research scientist's primary sources are the results of laboratory tests and the medical records of patients treated with the drug.
Written information can be divided into several types.
• Primary Sources
• Secondary Sources
• Tertiary Sources