Risk Aversion in the Forex is a kind of trading behavior exhibited by the foreign exchange market when a potentially adverse event happens which may affect market conditions.
This behavior is caused when risk averse traders liquidate their positions in hazardous assets and shift the funds to less hazardous assets due to uncertainty.
In the context of the forex market, traders liquidate their positions in various currencies to take up positions in safe refuge currencies, such as the US Dollar.
Sometimes the choice of a safe refuge money is more of a choice based on prevailing sentiments than one of economic statistics.
An example would be the Financial Crisis of 2008. The value of equities across world fell while the US Dollar strengthened.( See Fig.1 ) This happened despite the strong focus of the crisis in the USA.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment