How Currency Contagion Might Spread -- Russia defaults on its foreign debt and suspends payment on currency hedges -- A hedge fund manager who used Russian treasury bills as collateral to get financing to buy more Russian T-bills receives a margin call from his U.S. bank -- The hedge fund manager sells whatever possible--say, collateralized bonds in Latin America--to meet the call -- Forced selling by the hedge fund manager and other overleveraged investors helps depress the value of those bonds -- The hedge fund goes bust and the bank learns of another loan gone sour--and perhaps lower values for its holdings of emerging-market debt Return to main story

Updated Sept. 3, 1998 by bwwebmaster
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