George Soros is a well - known American trader, financier, investor and philanthropist. Some describe it as the culprit of currency crisis, as the valiant knight with charitable institutions. At the moment, Soros is the most successful trader of the Forex market, which no one can override. Due to speculations with the GBP, the trader was able to earn approximately GBP 1 billion in the Black Wednesday, 16 September 1992.
During the heyday of the career of George Soros, the UK was an integral part of the exchange rate mechanism. If the pound against the German mark weakened, the system has required government intervention. Being very young, Soros predicted that due to the high level of British interest rates and adverse exchange rate the Bank of England will find themselves in a precarious situation.
In order for the pound against the Deutsche mark remained stable, the government was forced to buy the sterling or to raise interest rates, which has left a negative imprint on the work of British financiers. The decline of the pound led to the fact that the rapid rise in interest rates has caused significant damage to the rest of the economy. Therefore, the investment was significantly limited and attracted the financial processes to the bottom.
With the cooperation of England with ERM was necessary to support the pound, so the economists of the Bank of England had to admit that the level of interest rates should be significantly below are. However, it is worth considering that the value of sterling was maintained because of the public commitment of the UK to buy sterling, George Soros realized this and decided to take advantage of the situation.
To achieve this goal, Soros used his Quantum Fund, such actions were designed to build large positions on the pound sterling. The circumstances were such that a couple of days before Black Wednesday received comments from the President of the German Bundesbank, they were given reason to consider that a number speculorum currencies will be under pressure. This led to the fact that Soros was able to significantly exaggerate their positions.
Due to increased market speculation, the price of the pound is little changed, so when the Bank of England began in the morning to buy billions of pounds, he fell into a trouble. Such actions led to the fact that rates of England to raise is not successful, then the UK announced its exit from the ERM and the resumption of free-floating pound, the currency fell by 15% against the Deutschemark and by 25% against the US dollar.