Soros’ strategy to attack the Thai baht

1. Early preparation:

(1) Research and planning: In-depth study of Thailand’s real economic development situation in the region. Based on first-hand information and data, formulate a detailed combat plan;

(2) Fund preparation: After deciding to attack the Thai baht, borrow from local banks, raise funds from offshore financial markets, sell local assets, and raise funds from local Stock custodians borrow shares and sell them short in exchange for baht.

2. Start sniping:

(1) Sell Thai baht violently in exchange for US dollars in the spot market;

(2) Purchase a large number of forward contracts from local banks , short-selling forward Thai baht, that is, paying Thai baht to the bank in the forward period and asking for US dollars;

(3) Short-selling the stock market.

3. Sniper effect

(1) Hedge funds violently sold Thai baht in exchange for US dollars in the spot market, causing market expectations of depreciation of the currency, which triggered follow-up selling and caused the Thai baht to Depreciation;

(2) In order to avoid the risk of forward foreign exchange transactions, banks try to flatten their currency positions, that is, they sell Thai baht in exchange for US dollars in the spot market, thereby accelerating the depreciation of the Thai baht;

(3) When the Thai monetary authorities encounter a large amount of selling of the local currency, in order to maintain exchange rate stability, they absorb the sold local currency and at the same time increase the short-term loan interest rate of the local currency to increase the speculation costs of speculators. Both of these actions will drive up interest rates on the domestic currency. The measures taken by Thailand to protect non-speculative credit demand have created a huge difference between domestic interest rates and offshore interest rates, thus creating arbitrage opportunities;

(4) The increase in interest rates has caused a decline in the stock market Fall sharply.

4. Profit:

(1) Use long forward contracts and short forward contracts with the same maturity date and the same amount to hedge, or use U.S. dollars in the spot market at maturity Exchange for Thai baht for delivery;

(2) Use interest rate swap contracts to make profits by exchanging fixed interest rates for floating interest rates;

(3) When the stock price falls, close positions in the stock market to make profits;

(4) Hedge funds converted their profits from the stock market into U.S. dollars, further increasing the pressure on the Thai baht to depreciate;

(5) After the Thai baht depreciated sharply, the US dollars buy back Thai baht to repay Thai baht borrowings and interest.

Note: Using foreign exchange futures and options trading for sniping is similar to forward foreign exchange trading.