speeches assessing current financial imbalances in light of this experience, the federal reserve is carefully monitoring financial indicators for signs of potential imbalances and is assessing the extent to which leverage is currently employed by investors, particularly where some of the potentially amplifying factors i just discussed may be present. asset valuations misaligned asset prices are notoriously difficult to detect in a timely fashion, and no single metric or set of metrics can consistently and reliably identify stretched valuations. nonetheless, it is clearly worthwhile to track a wide range of metrics and to view them in the context of their historical norms. current conditions can be evaluated against a baseline of past experience, and then assessed in light of the various institutional and market factors that could conceivably account for deviations from historical ranges. the federal reserve tracks a large number of indicators, and i will highlight a few examples. overall, these indicators do not obviously point to significant excesses or imbalances in the united states. for example, as shown in figure 1, forward price - to - earnings ratios in the stock market fall within the ranges prevailing in recent decades, and are well below the early2000 peak, although corresponding measures for small - cap equities ( not shown ) appear somewhat elevated. in the residential real estate market, price - to - rent ratios are now somewhat below their long - run averages, in sharp contrast with the situation immediately before the financial crisis. notwithstanding this general view, some areas warrant our ongoing attention. as shown in figure 2, credit spreads on nonfinancial corporate bonds have dropped sharply since the financial crisis. this decline partly reflects improvements in earnings and corporate balance sheets, but also lower risk premiums. one measure of risk premiums, the forward spreads far in the future, are extremely low compared with historical norms for high - yield bonds, suggesting that investors have become more willing to assume credit risk. in the syndicated leveraged loan market, strong inflows appear to have contributed to an increase in prices. i will return to developments in this market and discuss their potential ramifications shortly. rapid debt growth may also signal emerging imbalances. in recent quarters, issuance of high - yield bonds by nonfinancial corporations has been robust. as shown in figure 3, credit flows have also been solid in the syndicated leveraged loan market, with a substantial amount of this credit being ultimately provided by nonbank institutional investors such as loan mutual funds,

a fair rate of exchange between goods and services that are produced in the domestic economy with those that are produced abroad. trade and investment is facilitated by an exchange rate that is stable and reflective of economic fundamentals, not by one that is volatile and unstable and subject to speculative capital flows. the exchange rate should also not be manipulated to cater to narrow sectoral interests. for every change in the exchange rate that benefits one sector, there would be another sector that is disadvantaged. therefore, the exchange rate policy has to rise above sectoral interests and consider the overall economic implications in deciding on the appropriate exchange rate. it is also not prudent to respond to short - term trends or to focus solely on developments in bilateral exchange rates. malaysia has trading and investment relations with many nations. we therefore, cannot look at movements of any particular currency pair as a basis for determining the appropriate valuation of the ringgit. a longer - term perspective to exchange rate policy is taken, looking at the relationship between the exchange rate and economic fundamentals. of greater importance is to focus on enhancing our overall productivity and competitiveness against all our major trading partners. the pegged exchange rate has served malaysia well. it continues to serve malaysia well. this is manifested in terms of the significant growth in the volume of trade and the steady inflow of foreign direct investment. in trade - weighted terms, the exchange rate is not misaligned. since the ringgit peg to the us dollar, the ringgit real effective exchange rate ( reer ), which is the trade weighted value of the ringgit against our major trading partners ’ currencies after taking into account changes in our inflation relative to those of our trading partners, has fluctuated within a range of plus or minus 7 %. this is well within an acceptable range. more importantly, the ringgit reer has not experienced a sustained trend towards increasing appreciation or depreciation. the ringgit has essentially gravitated around its fair value and has not experienced misalignment. finally, the malaysian economy has both external balance in the form of a sustainable current account and internal balance in the form of price stability. this again supports the ringgit being fairly valued. in addition, foreign direct investors have placed more importance on factors other than just the exchange rate alone. in managing exchange rate policy, no amount of exchange rate manipulation would satisfy the interests of all parties at all times. indeed, it is a stable and fundamentally sound exchange rate system that will best serve