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Abstract
The period running from the beginning of 1993 through the first quarter of 1994 was an eventful one for global capital markets. In the industrial world, the long rally in bond markets since 1990 suffered a particularly sharp reversal in the first quarter of 1994;1 indeed, the surge in government bond yields among the Group of Ten countries from the beginning of February through the end of March 1994 was one of the largest two-month increases recorded during the postwar period. Meanwhile, 1993 turned out to be a boom year for private financing to developing countries, marked by a sharp increase in the volume of flows, an improvement in the terms of borrowing, strong increases in equity prices in many local stock markets, and a significant broadening of the investor base. That market too, however, suffered a sharp dip—some would say, correction—during the first quarter of 1994. Last but not least, the past twelve months has witnessed heavy involvement by policymakers in regulatory and supervisory issues. The spate of large losses suffered by some hedge funds (e.g., Granite Partners, Steinhardt Partners, and Quantum Fund), by some large banks (e.g., Banesto and Crédit Lyonnais), and by some end-users of derivatives (e.g., Metallgesellschaft, Codelco, and Procter and Gamble) has only served to underline the heterogeneous nature of risk in today’s global financial markets.
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