In late 1996 one of the managing directors of Soros Management, Arminio Fraga, read an article by Professor Carmen Reinhart from the University of Maryland on the vulnerabilities of the East Asian economies. He passed the article to George Soros. In his book The Crisis of Global Capitalism, Soros admitted that his fund management company anticipated the Asian crisis at least six months before it happened. The fund sold short the Thai baht and Malaysian ringgit early in 1997 with maturities ranging from six months to a year.

PLACING YOUR BETS IN CURRENCY BATTLES: CENTRAL BANKS OR THE HEDGE FUNDS?

Hedge funds were invented in 1949, reputedly by Alfred Winslow Jones, who first leveraged his investments, sold short positions, had a limited partnership to avoid having greater regulation and took 20 percent of profits as performance fees. Initially they were slow to grow, but George Soros made hedge funds famous when his funds took a US$10 billion short position against the Bank of England. On the famous Black Wednesday, 16 September 1992, the Bank of England had to abandon the exchange rate mechanism (ERM) after it spent US$15 billion to support the pound and raised interest rates to as high as 15 percent to prevent sterling devaluation. Soros was reputed to have made about US$1.1 billion from this trade.