Foreign interest rates
Foreign interest rates
Author
Discussion

thisislife

Original Poster:

344 posts

199 months

Thursday 25th August 2011
quotequote all
Does anyone have any experience with investing their money overseas?

I've seen that Brazil's current interest rate is 12.5% which seems very attractive although i'm guessing that high rate means high risk?

Any advice or stories on this?

Eric Mc

124,066 posts

281 months

Thursday 25th August 2011
quotequote all
The main risk with foreign bank accounts is currency fluctuations.

thisislife

Original Poster:

344 posts

199 months

Thursday 25th August 2011
quotequote all
Looking at this graph of historical interest rate data (although currently at the lower end of the scale) it still looks pretty good?

http://www.tradingeconomics.com/brazil/interest-ra...

Should I be speaking to my accountant? I've never invested overseas before and wouldn't have a first clue about how to go about it. Just wondering if anyone can speak from experience.

Eric Mc

124,066 posts

281 months

Thursday 25th August 2011
quotequote all
thisislife said:
Looking at this graph of historical interest rate data (although currently at the lower end of the scale) it still looks pretty good?

http://www.tradingeconomics.com/brazil/interest-ra...

Should I be speaking to my accountant? I've never invested overseas before and wouldn't have a first clue about how to go about it. Just wondering if anyone can speak from experience.
You will still be liable to UK tax on the interest.

The amount you get in interest could be wiped out if currencies go to pot.

As I said earlier, you are introducing an additional risk factor when you start dealing with foreign currencies.

jeff m

4,066 posts

274 months

Thursday 25th August 2011
quotequote all
thisislife said:
Does anyone have any experience with investing their money overseas?

I've seen that Brazil's current interest rate is 12.5% which seems very attractive although i'm guessing that high rate means high risk?

Any advice or stories on this?
Around 1982ish the UK rate was about that...we all survived.
Brazil has been struggling with inflation, hence the high rates.
As per Eric's warning there is capital risk, but if you can spread the risk into more than one currency then depending on your personel situation that might work.

Safest way would be too look for an emerging market bond fund.
The word "emerging" may make you think "that sounds dodgy" but most of these countries have better debt ratios than the UK or US.
Basically two types one in $s one in local currencies(called an emerging market local currency bond) Waste of ink that last statement. They tend to be newer with less history. I'll C & P the make up of one of mine.
I hope it makes sence to you and is some help.
This one currently pays 6.5%. Paid 6 even when I bought so it did drop a little over the past week or two, but overall I am VERY happy to have it.
All/most of these funds will be heavy in Brazil.


BRAZIL NOTA DO TESOURO NACIONAL 10.000 01/01/2014
Brazil Notas do Tesouro Nacional Serie B 6.000 05/15/2015
Brazil Notas do Tesouro Nacional Serie F 10.000 01/01/2012
Brazilian Government International Bond 7.125 01/20/2037
Iraq, Republic Of 5.800 01/15/2028
KAZMUNAIGAZ FINANCE SUB 7.000 05/05/2020
MEXICO 10.000 11/20/2036
PHILIPPINES 6.375 10/23/2034
RUSSIA 7.500 07/15/2014
Turkey Government International Bond 8.000 02/14/2034

BRAZIL NOTA DO TESOURO NACIONAL 10.000 01/01/2014
Brazil Notas do Tesouro Nacional Serie B 6.000 05/15/2015
Brazil Notas do Tesouro Nacional Serie F 10.000 01/01/2012
Brazilian Government International Bond 7.125 01/20/2037
Iraq, Republic Of 5.800 01/15/2028
KAZMUNAIGAZ FINANCE SUB 7.000 05/05/2020
MEXICO 10.000 11/20/2036
PHILIPPINES 6.375 10/23/2034
RUSSIA 7.500 06/14/2014
Turkey Government International Bond 8.000 02/14/2034

Argentina 7.000 10/03/2015
BRAZIL NOTA DO TESOURO NACIONAL 10.000 01/01/2014
Brazil Notas do Tesouro Nacional Serie B 6.000 05/15/2015
Brazil Notas do Tesouro Nacional Serie F 10.000 01/01/2012
Brazilian Government International Bond 7.125 01/20/2037
Iraq, Republic Of 5.800 01/15/2028
MEXICO 10.000 11/20/2036
PHILIPPINES 6.375 10/23/2034
RUSSIA 7.500 05/15/2014
Turkey Government International Bond 8.000 02/14/2034

Argentina 7.000 10/03/2015
BRAZIL NOTA DO TESOURO NACIONAL 10.000 01/01/2014
Brazil Notas do Tesouro Nacional Serie B 6.000 05/15/2015
Brazil Notas do Tesouro Nacional Serie F 10.000 01/01/2012
Brazilian Government International Bond 7.125 01/20/2037
Iraq, Republic Of 5.800 01/15/2028
MEXICO 10.000 11/20/2036
PHILIPPINES 6.375 10/23/2034
RUSSIA 7.500 04/14/2014
Turkey Government International Bond 8.000 02/14/2034

Argentina 7.000 10/03/2015
BRAZIL NOTA DO TESOURO NACIONAL 10.000 01/01/2014
Brazil Notas do Tesouro Nacional Serie B 6.000 05/15/2015
Brazil Notas do Tesouro Nacional Serie F 10.000 01/01/2012
Brazilian Government International Bond 7.125 01/20/2037
Iraq, Republic Of 5.800 01/15/2028
MEXICO 10.000 11/20/2036
PHILIPPINES 6.375 10/23/2034
RUSSIA 7.500 03/15/2014
Turkey Government International Bond 8.000 02/14/2034

Argentina 7.000 10/03/2015
BRAZIL NOTA DO TESOURO NACIONAL 10.000 01/01/2014
Brazil Notas do Tesouro Nacional Serie B 6.000 05/15/2015
Brazil Notas do Tesouro Nacional Serie F 10.000 01/01/2012
Brazilian Government International Bond 7.125 01/20/2037
Iraq, Republic Of 5.800 01/15/2028
MEXICO 10.000 11/20/2036
PHILIPPINES 6.375 10/23/2034
RUSSIA 7.500 12/06/2017
Turkey Government International Bond 8.000 02/14/2034

Argentina 7.000 10/03/2015
BRAZIL NOTA DO TESOURO NACIONAL 10.000 01/01/2014
Brazil Notas do Tesouro Nacional Serie B 6.000 05/15/2015
Brazil Notas do Tesouro Nacional Serie F 10.000 01/01/2012
Brazilian Government International Bond 7.125 01/20/2037
Iraq, Republic Of 5.800 01/15/2028
MEXICO 8.500 12/13/2018
MEXICO 10.000 11/20/2036
PHILIPPINES 6.375 10/23/2034
RUSSIA 7.500 11/08/2017

As of 06/30/2011 the Emerging Markets Bond Fund had a total of 283 holdings.
Bond Maturity Diversification2 as of 07/31/2011
% of Total Net Assets
0 - 1 YRS 4.9%
1 - 5 YRS 35.4%
5 - 10 YRS 34.2%
10 + YRS 25.5%

2Total may not equal 100% due to rounding.
Country Exposureas of 07/31/2011
Brazil 16.4%
Russia 14.8%
Turkey 8.4%
Mexico 7.9%
Venezuela 6.2%
Indonesia 4.1%
China 3.6%
Ukraine 3.2%
Argentina 3.2%
Philippines 3.0%

See Glossary for additional details on all data elements.

marky1

1,094 posts

212 months

Thursday 25th August 2011
quotequote all
Look up "carry trade" - that's essentially what you are suggesting. All well and good until the FX rate moves 30% against you.....

thisislife

Original Poster:

344 posts

199 months

Thursday 25th August 2011
quotequote all
jeff m said:
Around 1982ish the UK rate was about that...we all survived.
Brazil has been struggling with inflation, hence the high rates.
As per Eric's warning there is capital risk, but if you can spread the risk into more than one currency then depending on your personel situation that might work.

Safest way would be too look for an emerging market bond fund.
The word "emerging" may make you think "that sounds dodgy" but most of these countries have better debt ratios than the UK or US.
Basically two types one in $s one in local currencies(called an emerging market local currency bond) Waste of ink that last statement. They tend to be newer with less history. I'll C & P the make up of one of mine.
I hope it makes sence to you and is some help.
This one currently pays 6.5%. Paid 6 even when I bought so it did drop a little over the past week or two, but overall I am VERY happy to have it.
All/most of these funds will be heavy in Brazil.
I need to swat up! All interesting stuff though thanks very much.

marky1 said:
Look up "carry trade" - that's essentially what you are suggesting. All well and good until the FX rate moves 30% against you.....
Had a quick google and yes I can totally see where you're coming from. Its a gamble I guess as I originally thought higher risk higher reward.



cuprabob

16,954 posts

230 months

Thursday 25th August 2011
quotequote all
Remember what happened to all those people / organisations that invested in Iceland because of their high interest rate

tinoproductions

142 posts

168 months

Thursday 1st September 2011
quotequote all
Unfortunately you will only benefit if you purchase hard currency bonds (USD, EUR) in YOUR local currency, as FX rates in the futures market are discounted so that there is no arbitrage.

Essentially:
You buy a 6 month BRL (Brazilian Real) bond, paying 12.5% pa with your pounds
At the same time you purchase the 6 month BRL fx future.
In 6 months you redeem your bond and do the FX back to GBP.

You will only earn the 6month GBP rate as the future is priced in a way so that you can't make 'riskless' profit.

If you go into it without the FX future, you are taking on all the FX risk, and your 12.5% return can be gobbled up.

As I said, you can look into hard currency bonds, which do pay more than their respective sovereigns, and you are taking on default risk.

Beardy10

24,550 posts

191 months

Thursday 1st September 2011
quotequote all
It does make sense in some circumstances...at least I think so.

I bought some bonds denominated in RMB recently as a 5yr currency play.....I think the RMB will gradually appreciate as the Chinese soften their stance. The bonds I bought were issued by VW so not taking on Chinese Bank or Corporate risk. VW issued the bonds as they are obviously investing massively out there.