In fact, market fluctuation, another long-term instability, has become the main source of profits for financial institutions in the financial sector. Long-term investors are endangered species in the financial sector, and most market participants have become short-term beneficiaries of leveraged traders, even pension funds and university endowment funds. The only factor of production maintains any illusion of stable wages.
Recurrent financial crises around the world have similar characteristics. Every crisis is mainly caused by unexpected market analysts and central bank economists. With the provision of the futures market, there is no indication that turmoil is imminent. Entering every crisis, complacency, the spread of currencies, bonds, or products with high leverage and long positions of traders quickly suffered a heavy speculative counterattack. In each case, traders guide their trading strategies by constructing trading patterns from historical patterns. When the vast majority of traders adopt similar trading strategies, the market will go beyond technical pressure and break away from traditional wisdom and reality. However, once the crisis breaks out, traditional wisdom is a sweeping fact, and traders are sent to repay their highly leveraged positions to the public, hoping to withdraw from the crowd in time. In each case, the position of eager to relax high leverage has aggravated the serious crisis of money or fixed income.
Exchange rate and purchasing power parity
Theoretically, exchange rate adjustment can achieve purchasing power parity between the two currencies. Purchasing power parity is the price at which a unit's domestic currency can buy the same amount of goods in another economic system and convert them into foreign currencies at the current exchange rate in accordance with the law. If it is held at purchasing power parity, then the price of the same commodity basket will be converted at the same price after each economy. If they don't do this, the opportunity "risk-free profit" will be transformed into a large-scale transnational capital flow through the arbitrage foreign exchange market. Finally, the price arbitrage will determine that the two economies will change the purchasing power parity in the market exchange rate or commodity prices and rebuild the two currencies. With the deregulation of the global capital market, asset prices are also adjusted with the convergence of purchasing power parity, which leads to the market collapse between the two currencies.