Professor Kevin Lawler Econ 512 Economics of Financial
- Slides: 10
Professor Kevin Lawler Econ 512 – Economics of Financial markets Swiss Exchange rate Analysis Presented by Adnan Tariq Kuwait University 1
Outline � Why � Sep, 2011 � Why � Swiss National Bank Pegged Swiss franc to Euro Swiss National Bank Unpegged (surprise implication on markets) January 2015 2
Background info � Swiss Franc ◦ Major currency – safe haven asset ◦ Demanded heavily so appreciates naturally ◦ Due to high capital inflows ◦ Worlds 17 th largest exporter � Euro and Greek debt crisis ◦ Investors seeking safe haven ◦ Debt crisis intensified after 2008 crisis � As a result, Swiss franc appreciated 3
The fixed Exchange rate � Pegged ◦ ◦ rate 2011 1 franc =1. 2 euro How ? Print franc and buy Euro What kind of peg? Frequent intervention of SNB in exchange rate market � Hurts Swiss exports to Euro ◦ Major trading partners – Euro ◦ So prevent Swiss appreciation relative to franc � SNB purchased foreign currency worth $ 480 Billion 4
Why Peg? 1. Euro debt crisis intensified in 2011 1. appreciating franc = hurt exports 2. SNB imposed Peg 5
Why SNB float Currency � Surprise move (January 2015) ◦ Caused a panic in the market – uncertainty ◦ Swiss Franc appreciated 30% against Euro � Reason ◦ European Central Bank devaluation �Through Quantitative Easing �QE - Its money creation �To buy the government debt of euro-zone countries � Why is it a Problem for Swiss franc �QE by ECB will depreciate Euro/ appreciate Franc �SNB will print more Franc to buy Euro 6
Other reasons � Other reason ◦ Political pressure – fear of hyperinflation ◦ Due to printing franc and building foreign currency reserves 7
Market effects of floating Swiss Franc � Adverse impacts on Swiss economy ◦ Hurt exports (watches, chocolate and tourism) ◦ Almost 50% of GDP depend on exports ◦ Ex: Canada main importer of Swiss chocolates ◦ Swiss franc appreciated against CAD 13 % 8
Market effects of floating Swiss Franc - 2 � Adverse impacts on Swiss economy ◦ Ex: Ski resorts costs almost double as compared to competitors like France and Germany ◦ As a result, businesses have to decrease prices and reduce profits. ◦ Economy is in deflation �With interest rate almost at zero lower bound 9
Thank you for listening Questions? ? 10
