When a country increases its official bank rate, those with money on deposit earn more cash for it. It does not mean only the locals, but overseas investors start placing their money into that country as well. For that to happen, they are obliged to purchase the currency in question, which requires selling a currency they hold. It also means that those who were thinking about selling their domestic currency before the rate increase, may well change their mind since they would now hope to be able to earn more money by staying put.

Thus, a scenario might develop creating more buyers than sellers, prompting the currency to appreciate.However, there are two sides to that, because the speculators might figure it may not be prudent to invest money into the country just because its interest rate was raised. They may interpret that situation in a different way, and have their own ideas about the position of that particular currency. Therefore, the currency which anyway might not have been the flavour of the month, can become the recipient of a rather negative sentiment, and consequently even start depreciating.

Every country needs to trade, and goods have to be manufactured and exported to earn foreign money. Of course to make things, you have to buy raw materials to make them. If your currency is weak, the raw material will become expensive since the foreign currency has to be bought to get that material. However, if your currency is too strong, the goods will be expensive to export.

Finding the right balance and not overshooting one way or the other takes time and particularly if a series of other factors keep coming into the equation, thus causing all sorts of volatility. As can be imagined, not many businesses are keen to se going on for too long.

The central banks purchase and sell currencies in order to keep things in some sort of shape they would like to see. These kind of treatments and interventions can push the value of the currency up or down for a certain limited time.

Being able to understand the full role of the official bank interest rates and the reasons for their introduction, can be of value for both the foreign currency and property investors.

If playing these markets, remember that to make a profit it is important to use the best tools for the job. In the case of foreign currency needs, the various companies that provide really excellent service offering cheaper rates than the high street banks do, can be found with ease on the internet. By phoning around, one can soon discover the best currency rates going.

In the case of property, approaching the realtors is cheapest in the long run. They know their business well, and will not get involved with properties which have minus points attached to them without letting you know all about it. Having lots of good properties on the market, they do not wish to get involved with problematic ones. Knowing what is good and what is not so good is worth plenty, particularly these days.

If we look at the history, it shows that the capital markets crisis always starts from the financial sector since 1900′s. By further investigation, it shows that the earliest indicator of the financial problems isthe default.We just heard that there is delay in payment of obligation by Nakheel Company (a subsidiary of Dubai World) is submitteddirectly by the Government of Dubai.This together with the pessimisticglobal capital markets are haunted by a lack of U.S. GDP(only 2.8%) with 10.2% unemployment rate.

Dubai World is a Dubai government-owned company thatengaged in various fields of infrastructure, one of which isNakheel.One of the famous Nakheel project is the Palm Island, a housing block in the middle of palm tree-shaped sea.Its funding sourcescome from obligation (3.52 billion USD), which expirationdate of payment is on 14^th December 2009, is proposed to be postponed until 30^th May 2010.This delay is certainly a negative effect for the holders, who are in desperate need of liquidity.

Subprime Mortagage part 2?

One of the major concerns is when the obligation price further dropped. This will led to the collapse of related investment such as mutual fund, unit link, and retirement funding, even banks (there are some banks that are predicted to suffer losses due to this case).These can effects on the portfolio investment.If the investorsrespond quickly and the withdrawal of funds was done in large amount andsimultaneously, then the rush will occur.Portfolio value can fall dramatically!

However, it is different from the subprime mortgage that is happening in America, where there is no underlying asset of this,so the value could actually completely go.However, the market value of real estate in Dubai havedecreased by 70%, this will certainly affect the warranty orunderlying asset given by Nakheel (sourcewww.bloomberg.com).In addition, a lot happens by default in the payment of such property, this will impact on liquidity in the Dubai property companies in general.

It can affect the price of other bonds that actually have better outlook(domino effect).Therefore, when this happens, it can impact together on the economic turbulence if the Dubai government did not immediately anticipate this problem as soon as possible.In addition, many analysts describe these event is similar as the case that occurred in Argentina.