In Tokyo today, the U.S. Dollar surged against the Japanese Yen and the Euro following the announcement that the United States government will soon put in place a comprehensive plan to address the liquidity problem of the financial institutions.
The Federal Reserve Bank Chairman and the U.S. Treasury Secretary intend to work during this weekend to come up with a plan that would target the liquidity problems. The plan is likely to involve in the establishment of a fund which will buy all the distresses assets from the financial institutions. This arrangement will be similar to the Resolution Trust Corporation.
The bad assets on the balance sheet of these financial institutions have caused some of the world’s most reputable banks, such as Lehman Brothers, to file for bankruptcy. Just this week, the U.S. government has to bail out American International Group.
Investors bought the U.S. Dollar because they believe the proposed plan will be comprehensive enough in dealing with problems, rather than tackling them one firm at a time.
The Euro fell by 1.3% in late trading in the U.S. to $1.4160, while the U.S. Dollar surged by 1.6% to 107.10 Yen.