Hedge Funds-who is the winner(literature review) Essay

Hedge Funds-who is the winner(literature review) - Essay Example In the later part, we give an analysis, consult other authors and available literature in the field, and critically assess Brown’s article on hedge funds. The phrase â€Å"hedge funds† alone has not been well defined. Dr. Grenville, Deputy Governor of the Reserve Bank of Australia could not mention the proper definition. The Bank of Australia, in a paper submitted to the Australian House of Representatives, indicated that it was very concerned about the activities of highly leveraged financial intermediaries known as â€Å"hedge funds†. The paper stated that they were concerned that the funds made money â€Å"by attacking an exchange rate that has already overshot, so that it overshoots even further.† Through published actions and short selling, a bandwagon forms, then the funds would pull out. The Bank paper further stated that this was what happened to the ERM crisis that hit the British Pound in 1992, the Asian currency crisis in 1997 and speculative attacks on the Hong Kong dollar peg in 1998. With their action, the funds were holding the small countries hostage. (p 301) Brown (2001) pointed out that the International Monetary Fund reported that in the 1990s, there were financial intermediaries that had been investing steadily into South East Asia. There was a net inflow of about US$20 billion into the region over and above portfolio and direct investment; this was up to 1995 and 1996 when it increased to US$45 billion per annum. Then, there was a collapse of the Baht and the Ringgit in 1997 (the start of the Asian financial crisis), and a sudden outflow of US$58 billion. It was then perceived by the central bankers in the region that the collapse in the currency had everything to do with an attack on the currencies of the region by well-financed international speculators. Hedge funds could be the cause of the Asian financial crisis. One of those who believed on this was Dr. Mahathir bin Mohamad when he said,