During the past year, global capital markets have experienced an unprecedented series of financial turmoils. Asian contagion, Russia's default and the collapse of the US hedge fund Long Term Capital Management (LTCM) are the low points of this development As recent events in Latin America and elsewhere indicate, there is no prospect that markets worldwide will lastingly calm down soon. There is an abundance of proposals and suggestions on how the system should be stabilised. The most popular among them include the control of capital flows and hedge-fund activities. The following article draws attention to another element of financial instability which at times triggers, at times fuels, a crisis: expectation-driven foreign exchange transactions.
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