Friday, October 31, 2008

News in The Straits Times (31st Oct 2008)

Was reading the papers today and found 2 articles rather interesting

1 . Singapore central banks announces swap facility with Fed
Summary : Singapore's central bank announced on Thursday a swap facility with the U.S. Federal Reserve that will provide dollar liquidity of up to $30 billion to meet the needs of the banking system. ( The US Fed reserves also gave this swap facility to a few other countries. The gave it to Singapore because its the 2nd largest country, after Japan, in Asia that uses the USD .)

My thoughts : This is most likely a form of insurance just in case anything happens. I.e to prevent a rise in US $$ against the Singapore $$ when there is a shortage of USD in the market This is because currently, we should have sufficient USD,as it does not seem like trade with the US is going to increase very suddenly.
However this could imply that they are expecting more people to exchange SGD for USD..and probably more trading with the US...or at least not to discourage trading with the US. Because a weak Singapore dollar would mean we have to pay more to buy stuff for the US, discouraging us from buying from them.

link: http://sg.news.yahoo.com/rtrs/20081030/tbs-singapore-centralbank-a5a65c6.html

2. Singapore's Accounting Standards Council (ACS) adopts new standards for reclassification of financial assets


Summary : In the near future, financial instruments that Companies use do not have to be marked to the Market condition. Hence affecting the profit and loss statement.
This is because presently many firms are so called 'booking a loss' because some assets ( particularly assets that do not drop in value if held to maturity) that they are holding have a major drop in value, even though the company might be doing well, hence affecting their financial statement.

My thoughts: This is a short term way to help companies improve their financial report in the coming year. Luckily this is a one way change, meaning even in good times, they cannot over inflate their earnings using these assets.
Thus in the future, when looking at financial sheets, one still has to remember the change in accounting practices and evaluate the true worth of the company by including these special assets that might have rise with market conditions.

link: http://www.channelnewsasia.com/stories/singaporebusinessnews/view/386625/1/.html

2 comments:

ACE said...

Yes. this is no doubt a standby facility that has been put in place. Such arrangement is necessary due to the fact that Singapore is one of the large foreign exchange (FX)centres in Asia ranks after Tokyo. Even ahead of HK.

Redemption of assets in asia by hedge funds and other investment entities would require usd (usd being the settlement currency).

In the case of Japan, unwind of the
carrytrade via selling yen in exchange of usd resulting higer demand of usd. (in the past, investors swap low interest Yen to usd to take advantage of the interest rate difference,and weak usd, also know as carrytrade.)Now that the Jp yen has strenghten aginst usd, the revese of
the carrytrade becomes appearance.

ntuchartist said...

I see, so this standby facility is also due partly to Japan and also by hedge funds who are affected by the stock crisis and hence have to cash in on their investments in order to pay back their customers..

Thanks!