The current trend with respect to the foreign exchange market is found to be adverse over the long run. There has been an interest rate cut of 25 basis points (bps) which amounts to 0.25% by RBA setting a trend representing downwards on the overnight cash rate. The financial instability in the US market portends rate fluctuations to a high magnitude with respect to the overnight cash rates (Gooch and Pergam 1990). This raises concern with respect to risk management and the cash market.
The global meltdown started with the bubble burst of the housing market in the USA creating an unprecedented level of financial crisis in the global economy. The pervading nature of the financial crisis has affected a number of banks and financial institutions being intertwined into the markets of the United States. The recession is still going on making the picture of the future as blurred that leads to the situation compelled by speculation of the market based on the current developments of the global economy.
The notable Australian banks, such as, ANZ, NAB, and Commonwealth Bank has been considerably exposed to the derivative and credit markets of the United States’ in their financial markets. NAB, in particular, experienced considerable losses out of the US financial market. The company had been involved in a number of risky ventures in the US market that lead to a loss of $400 million being publicly announced by NAB. The losses being subject to the large risk that has led to the build up of the effect in Australia in relation to the funds such as superannuation (Grabbe 1991). The overcoming of such credit crisis bears considerable risks. The risks presage the chances of collapse of traditional American heavyweights, such as, Merrill Lynch or the American Investment Group (AIG).