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Swings and round-a-bahts

Stagnant forex markets in the US and Japan, and the push for a single currency in Europe, will force banks to take a keener interest in the exotic currencies of the Pacific Rim. "G-10 currencies are over-researched and over-broked and it is increasingly difficult for corporates and investors to be involved in them profitably," says Avinash Persaud, head of currency research at JP Morgan in London. "Asian currencies have for some time become increasingly important but I think 1996 will be their year of full emergence," he says.

The Malaysian ringgit will be the year's star among Asia's exotic currencies, largely as a result of the US-Malaysian interest rate differential. A 1.45% gap in the three-month rate has sparked an inflow of short-term funds. But even in Malaysia, few commercial bank lenders will take longer-term risk onto their own books.

As ever, export financiers are blazing a trail with the shield of a sovereign guarantee, the banking equivalent of an asbestos suit. The UK's Export Credit Guarantee Department (ECGD) is set to announce its first credit denominated in Malaysian ringgits.

And even when such guarantees are hard to find, bankers are now exploring techniques for using exotic currency swaps to transfer export credit agency (ECA) support from hard-currency credits to subsidize loans made in emerging-market currencies.

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