WORLDWIDE SHAKE-UP LINKED TO HONG KONG'S CURRENCY; Q & A.Byline: Eric R. Quinones Associated Press Associated Press: see news agency. Associated Press (AP) Cooperative news agency, the oldest and largest in the U.S. and long the largest in the world. Hong Kong's decision about whether to let its currency trade freely in financial markets or stand firm in supporting its value is behind Thursday's global stock market unrest Unrest is a sociological phenomenon, for instance:
Some questions and answers about what happened: Q: So what does a nation's currency policy have to do with the stock market? A: The value of a nation's currency determines how much its citizens can afford to buy from world markets and how hard it is to sell a country's products abroad. A higher currency makes its goods more expensive abroad, making it harder to compete. It also makes imports less expensive to buy, hurting a country's own manufacturers but holding down inflation. So the strength of a currency can determine whether investors have confidence enough to invest in a country's businesses. Q: What is happening with Hong Kong's currency? A: Hong Kong's dollar is the only Asian currency still linked to the value of the U.S. dollar, while other regional currencies have been battered bat·ter 1 v. bat·tered, bat·ter·ing, bat·ters v.tr. 1. To hit heavily and repeatedly with violent blows. 2. To subject to repeated beatings or physical abuse. 3. after being released to trade freely on foreign exchange markets. Hong Kong Hong Kong (hŏng kŏng), Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov. views the peg to the U.S. dollar as vital to maintaining international confidence, now that China has taken over from Britain. As its neighbors' currencies dropped, some speculators were betting Hong Kong would bow to competitive pressure and devalue its dollar. But monetary authorities dipped into Hong Kong's foreign-exchange coffers to sell U.S. dollars and support the currency. Q: How does that work? A: Buying Hong Kong dollars Noun 1. Hong Kong dollar - the basic unit of money in Hong Kong dollar - the basic monetary unit in many countries; equal to 100 cents to prop up Verb 1. prop up - support by placing against something solid or rigid; "shore and buttress an old building" prop, shore up, shore hold up, support, sustain, hold - be the physical support of; carry the weight of; "The beam holds up the roof"; "He supported their value is a tactic aimed at thwarting thwart tr.v. thwart·ed, thwart·ing, thwarts 1. To prevent the occurrence, realization, or attainment of: They thwarted her plans. 2. speculators who are rooting for the currency to weaken. Such speculators borrow Hong Kong dollars and sell them for U.S. dollars or other currencies, hoping to buy back the Hong Kong currency at a cheaper rate to make a profit while paying off the initial loan. Q: How did the currency defense affect Hong Kong's stock market? A: In addition to buying Hong Kong dollars, monetary authorities in Hong Kong cut off a cheap source of credit to banks, triggering a stunning rise in interest rates that sent shudders through Hong Kong's stock market. Higher interest rates increase the cost of doing business for companies. In Hong Kong, the higher rates could rock the booming real-estate market and other thriving industries. Hong Kong stocks recorded their most severe sell-off in a decade as traders feared that the region's recent financial market crisis - spurred in part by rising interest rates meant to boost sagging sag v. sagged, sag·ging, sags v.intr. 1. To sink, droop, or settle from pressure or weight. 2. currencies - was finally spreading to East Asia's strongest economy. Q: Why did Hong Kong's market affect others worldwide? A: The stock sell-off, which grew as Americans slept, quickly spread through Asia and then rumbled into Europe as traders lost confidence that Hong Kong would be immune to the troubles engulfing its neighbors. When U.S. markets opened, traders sold off shares of technology companies, airlines and other businesses that depend on Asia for a significant portion of their profits. Investors from around the world sought safety for the money they had pulled out of stocks by buying highly secure and liquid U.S. Treasury U.S. Treasury Created in 1798, the United States Department of the Treasury is the government (Cabinet) department responsible for issuing all Treasury bonds, notes and bills. Some of the government branches operating under the U.S. Treasury umbrella include the IRS, U.S. bonds and bills, which shot higher. |
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