The Yen Carry Trade


wealthymattersA carry trade is a strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates, which can often be substantial, depending on the amount of leverage used.

Here’s an example of a “yen carry trade”: a trader borrows 1 million Japanese yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let’s assume that the bond pays 4.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 4.5% as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then he can stand to make a profit of 45%.Big outfits carry leverages of 100-300% Read more of this post

Jitters About Jitters


Read between the lines, especially on interest rates.

Not sure I agree with him on inflation. The labour component of many goods and service combos means higher prices(inflation),at least at a level that the RBI is missing. For example, check the prices that are trending upwards on street food. The likes of Vada Pav and Chinese Bhel are not my regular dinner, but is so for much of the labouring classes of Mumbai. One step above, at the cheapest eateries of the Irani and Udupi variety, the increase in prices is steeper and/or quantities are smaller or formerly free side-dishes are now absent. Check the substitution of urid dal with other cereals, coconut with besan and the emerging story is different. People at the margins now have clothes and shoes, maybe even mobile phones, but not everyone is able to afford a satisfying and nutritious meal. I’m struck by the similarity with a lot of the domestic cost cutting content on the internet originating from the US and Russia.

Thinking that the RBI needs some real agriculture experience.

Clues In Currency Exchange Rates


wealthymattersFor a lot of investors who delve into the forex market, one of the most appealing factors is simplicity. In most cases, you can start out in forex through opening a mini account with your broker, allowing you to trade smaller amounts and thus risk less as you get familiar with the market. Additionally, following currency exchange rates can be a slightly less stressful process than dealing in stocks because in some ways exchange rates tend to be less volatile.

But to deal successfully in forex, it’s necessary to learn the different hints and clues to watch for in measuring exchange rate trends. Along those lines, here are some things to keep in mind. Read more of this post

RJ Speak


wealthymattersThe following is an excerpt from a Rakesh Jhunjhunwala interview in the ET on the 27th of this month. Prescience?Wisdom?Wishful thinking?Motivated sound bytes?……….Time will tell.I thought it best to record the words for easy future reference.Here’s waiting for the structural and secular bull market that RJ speaks about!

During the challenging years of 2008-13, Indian corporates have restructured and become more competitive. Corporate governance has become better; and yet Indian investors have become more risk-averse and grossly underexposed to equity . We have come to believe that high interest rates, poor earnings growth and net outflows for domestic equity investors are the new normal. These factors are about to change, and for a very long time. This change is in inevitable and irreversible.

We are at the cusp of an era of strong policy frame work, business and investor friendly environment, elimination of supply-side constraints, initiation of a new capex cycle, falling interest rates, resumption of job creation, rising savings and a wall of foreign inflows combined with domestic outflows reversing into domestic inflows with a vengeance. While this is more obvious now, most of us are unable to comprehend the scale and the longevity of this change. We are at a stage where we are blinded by sudden light after being in a dark tunnel for years. We are unable to conceive the impact of a transition from the vicious cycle described above to a virtuous cycle the scale of which we have never experienced before. Read more of this post

Inflation Indexed National Savings Securities Cumulative (IINSS-C)


All of us have probably woken up to similar ads in our daily newspapers:

Ever since  I woke up this morning I have been asked for my gyan on the matter at least a dozen times,so here it is:

You can find all the details of the scheme here:Link and before you ask:There are no tax incentives to invest in these bonds.

As for my take on whether these are a good investment?My answer is that the answer is in these words in the notification:

final combined CPI will be used as reference CPI with a lag of three months (i.e. final combined CPI for September 2013 would be reference CPI for all days of December 2013). In case of change in the base year, the base splicing method will be used.

So if the government/RBI chooses to be honest,it might be a good deal.But if the combining(averaging?) and change in base year is used as a means to reduce interest rates,i.e. financial repression,this product might be no better and probably worse than many PO small savings schemes with pre-declared interest rates for the tenure.

So,wait and watch before consigning larger sums of money in this product.

 

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