INTREST RATES 8% AND 14 % BRAZIL AND INDIA

[jinkster]

I understand you can only get the 10% interest rates if your an Indian citizen. I was chatting to a work colleague of mine a few weeks ago and he told me this. Or failing that you could open a HSBC Premier account (if your premier) in Indian no questions asked and get the rates.

[ChrisCanning_Argentex]

jinkster said:

I understand you can only get the 10% interest rates if your an Indian citizen. I was chatting to a work colleague of mine a few weeks ago and he told me this. Or failing that you could open a HSBC Premier account (if your premier) in Indian no questions asked and get the rates.

Hi Jinkster,

You can actually benefit from the increased interest without actually opening an account and physically buying the cash. A reputable FX brokerage will enable you to enter into a 'NDF' contract. (This stands for Non-Deliverable Forward).

Essentially, this will allow you to buy INR forward for a year. The interest gained will be represented in the improved forward rate. At the end of the contract you will sell the INR back to GBP at the prevailing rate. As already discussed, this would only return a profit IF the INR did not depreciate more than the % return from the interest rate differential.

To make things simple see below:

Current GBPINR rate: 101.300
Therefore £100k = INR 10,130,000

1 yr forward rate: 107.513
Therefore £100k = INR 10,751,300

As you can see, this would give you a 'return' of INR 621,300 so just over 6%

I hope this makes sense.

Please be warned - to me, the risk is not worth the gamble. In the past year, the GBPINR rates have moved between 91.0 and almost 106. These very big swings could wipe out any profit, and lead to some substantial losses!

[iambeowulf]

ChrisCanning_Argentex said:

Hi Davidbht,

There was recently a similar topic regarding the higher interest rates in New Zealand and Thailand.

Unfortunately, it is not really possible. By investing in the Brazilian Real or Indian Rupee you may be able to gain the higher levels of interest, but you would need to 'hope' that the currency does not devalue by more than than the rate of interest that you are gaining. To me, 'hope' is not a good basis for a solid investment.

Emerging currencies such as the Real and Rupee are often extremely volatile, it is more than likely that when you return the funds to the UK you would indeed lose money due to currency devaluation.

If, and it is a BIG if, the currencies did not devalue, you would indeed make a profit. However, you may then find that it is very difficult to get the money out of Brazil and India and back to the UK. There are very strict currency controls in these nations, and you may find that in order to get the money out you will have to pay severe penalties and charges, assuming they let you release the currency at all...

Finally, you may suggest that you take up a currency hedge to protect yourself against fluctuations in the exchange rates. Unfortunately, this is not possible either because the hedge would take into account the interest rate differential and therefore any interest 'gained' would automatically be taken away.

Hope this helps - sorry if it has bored you...!

Chris Canning

I thought the Riel was pretty stable against the USD and GBP, certainly not "extremely volatile"?
The USD and Riel are legal tender in Cambodia and as a result are quite stable.

I get 12% interest and have done for five years.

[davidbht]

12% in Cambodia how is this achieved
regards
D

[iambeowulf]

Go to MFI (Micro Finance Institution, but like a Farmers Union) open account, deposit money.
They offer 7% (As do the big banks) on USD and 12% on KHR (Cambodian Riel).

Obviously you have to come here first.

[AlexC1981]

Am I the only one reading this thread with a shouty voice in their head?

[ATG]

You can't hedge the currency risk while taking advantage of the interest rate differential. If you think about how the hedge works you'll see it exactly reverses the "carry" trade your trying to do. The person offering you the hedge is guaranteeing to buy Baht from you in return for Sterling at some point in the future, say in 1yr. They'll do that by borrowing Baht for 1 year (paying Baht interest rates for 1 year) and immediately exchanging those Baht for sterling at the current exchange rate, and they'll then put that sterling on deposit (earning 1 year sterling interest). That way the hedger (a) has the sterling they will need to pay to you and (b) will use the Baht that you'll handover in a year to pay back the loan they took out. The forward exchange rate the hedger will therefore offer you will exactly offset the interest rate differential. The net effect is that you'll earn the equivalent of sterling interest rates on your original sum of money. And that of course ignores the transaction costs and profit margin the hedger will price in to their forward rate.

So the only way to "take advantage" of the interest rate differential is to run the FX risk unhedged. FX markets are volatile. You could really make our lose 1% on any given day. The FX risk tends therefore to be a much more important part of the trade than the interest rate differential.

So if you have a view on the currency market, then by all means put the trade on, but in general don't do it if you're just looking at the interest rate differential in isolation.

There is a long history of people getting stuffed by these sort of trades. E.g. swiss franc mortgages when interest rates in SFr were quite a bit lower than GBP.

P.s. just noticed you were asking about rupees; same applies.

[Ozone]

AlexC1981 said:

Am I the only one reading this thread with a shouty voice in their head?

I'm shouting it in my head and laughing out loud

sorry, CARRY ON

ATG said:

You can't hedge the currency risk while taking advantage of the interest rate differential. If you think about how the hedge works you'll see it exactly reverses the "carry" trade your trying to do. The person offering you the hedge is guaranteeing to buy Baht from you in return for Sterling at some point in the future, say in 1yr. They'll do that by borrowing Baht for 1 year (paying Baht interest rates for 1 year) and immediately exchanging those Baht for sterling at the current exchange rate, and they'll then put that sterling on deposit (earning 1 year sterling interest). That way the hedger (a) has the sterling they will need to pay to you and (b) will use the Baht that you'll handover in a year to pay back the loan they took out. The forward exchange rate the hedger will therefore offer you will exactly offset the interest rate differential. The net effect is that you'll earn the equivalent of sterling interest rates on your original sum of money. And that of course ignores the transaction costs and profit margin the hedger will price in to their forward rate.

So the only way to "take advantage" of the interest rate differential is to run the FX risk unhedged. FX markets are volatile. You could really make our lose 1% on any given day. The FX risk tends therefore to be a much more important part of the trade than the interest rate differential.

So if you have a view on the currency market, then by all means put the trade on, but in general don't do it if you're just looking at the interest rate differential in isolation.

There is a long history of people getting stuffed by these sort of trades. E.g. swiss franc mortgages when interest rates in SFr were quite a bit lower than GBP.

P.s. just noticed you were asking about rupees; same applies.

Thanks for that, I was getting interested but I am risk averse.

Edited by Ozone on Sunday 6th September 14:27

[bobbylondonuk]

I have money in India. Current bank rate is 8.25% on average. The currency fluctuates roughly 10% within any year on average for the past many years.

Unless you are of indian origin and plan to use the INR in India at some point, dont bother parking cash there. You are far better off investing in GBP in some ISA linked investments. The fluctuation risk + UK taxes on top is not worth it.

[ChrisCanning_Argentex]

iambeowulf said:

I thought the Riel was pretty stable against the USD and GBP, certainly not "extremely volatile"?
The USD and Riel are legal tender in Cambodia and as a result are quite stable.

I get 12% interest and have done for five years.

I think we are talking about different Reals/Riels... The Brazilian Real has significantly devalued over the past year, and in the current economic climate I can't see this devaluation stopping anytime soon...

I can't say that I track the Cambodian Riel too closely, but it seems to be fairly volatile. With lows of 5880 and highs of 6674 in the past year, and current levels somewhere between this, I would say this is quite volatile too... swings of 13% in 12 months can be quite dangerous for KHR deposits.

[iambeowulf]

Best stick to currencies you think you know then.