Friday, February 13, 2004

Neat Trick, or how to make $145million for the government

from Slate Moneybox

Clinton Treasury Secretary Robert Rubin, who had enormous influence on policy and decades of experience on Wall Street trading desks, mastered this subtle art. In his memoir, In an Uncertain World, Rubin recounts an episode in June 1998. The yen was at 141 to the dollar, the weakest the yen had been in eight years, and a bit too weak for the administration's liking. Rubin told the Senate Finance Committee that intervention is "a temporary tool, not a fundamental solution." Traders took the phrase as a sign that the administration wouldn't intervene to support the yen. And so in the next few days the yen slipped further, to about 146 to the dollar. Then, without warning, the U.S. government bought $2 billion in yen. "Currency traders were caught by surprise and the exchange rate moved all the way back to 136 yen to the dollar," Rubin recounted.

It is worth noting that this little game netted US government over $145million, leaving a couple million for expenses related to the trade. How so?

$2,000,000,000 * 146 yen/$ = 292,000,000,000.00 yen.

292,000,000,000.00 yen / 136 yen/$ = $2,147,058,823.53

the difference: $147,058,823.53 - expenses.

Not bad for a government official.


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