Risk Aversion
See also: Safe-haven currencyRisk aversion is a kind of trading behavior exhibited by the foreign exchange market when a potentially adverse event happens which may affect market conditions. This behavior is caused when risk averse traders liquidate their positions in risky assets and shift the funds to less risky assets due to uncertainty.
In the context of the foreign exchange market, traders liquidate their positions in various currencies to take up positions in safe-haven currencies, such as the US Dollar. Sometimes, the choice of a safe haven currency is more of a choice based on prevailing sentiments rather than one of economic statistics. An example would be the Financial Crisis of 2008. The value of equities across the world fell while the US Dollar strengthened (see Fig.1). This happened despite the strong focus of the crisis in the USA.
Read more about this topic: Foreign Exchange Market
Famous quotes containing the words risk and/or aversion:
“Men’s hearts are cold. They are indifferent. Not all the coal that is dug warms the world. It remains indifferent to the lives of those who risk their life and health down in the blackness of the earth; who crawl through dark, choking crevices with only a bit of lamp on their caps to light their silent way; whose backs are bent with toil, whose very bones ache, whose happiness is sleep, and whose peace is death.”
—Mother Jones (1830–1930)
“My true friends have always given me that supreme proof of devotion, a spontaneous aversion for the man I loved.”
—Colette [Sidonie Gabrielle Colette] (1873–1954)