Carry trades: Can they be done here? Aside from currency mismatch what are the risks?

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BCPK

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Article in yesterday's FT about carry trades e.g people in Hungary borrowing in Swiss frances from Swiss banks at lower interest rates than ECB rate to finance mortgages. How easily can it be done here? Aside from the currency mismatch what are the other primary risks involved?
 
Re: Carry trades

curency is the big one,but changes in interest rates is another,more suited to institutions than individuals.
 
Re: Carry trades

I think the currency risk is quite enough! Alot has been said about these so called 'carry-trades' recently. It is a common practice for hedge funds and others to borrow in Jap Yen (where interest rates are .25%) to invest in foreign assets. There is a growing fear that should the yen appreciate on the back of higher rates that all this carry-trading will spark a global financial crisis. Definitely not one for the casual investor.
 
Austrians also sometimes borrow in CHF for mortgages as the Swiss interest rate is also quite a bit lower than the Eurozone interest rate. So theoretically we could do it here as well. However the Austrians get the deal through austrian banks, or at least swiss banks with a subsidiary in Austria. I don't know of any bank here offering such a product.

I think currency fluctuation is a much bigger risk than changes in relative interest rate (though it's probably an acedemic point as you're unlikely to get one without the other).
 
I know of some Polish individuals working in Ireland who have bought homes back in poland through Swiss banks. Apparently quite common. Was wondering if there were any institutions here offering this but doesn't seem to be the case
 
Whats happening with the japanese yen and the carry trade involved there, it is quite scarey to say the least. The value of the yen is very low..when this happened before there was lots of trouble in world markets.

As the yen weakens, investors fear either a rise in Japanese interest rates (or some other form of monetary tightening) or central bank intervention to support the currency. This raises the risk that investors will lose money if they short the yen. So one source of global liquidity dries up. And the danger that this will happen cuts share prices. Further weakness in the yen could hurt global equities.
 
Re: Carry trades: Can they be done here? Aside from currency mismatch what are the ri

smiley said:
Whats happening with the japanese yen and the carry trade involved there, it is quite scarey to say the least. The value of the yen is very low..when this happened before there was lots of trouble in world markets.

As the yen weakens, investors fear either a rise in Japanese interest rates (or some other form of monetary tightening) or central bank intervention to support the currency. This raises the risk that investors will lose money if they short the yen. So one source of global liquidity dries up. And the danger that this will happen cuts share prices. Further weakness in the yen could hurt global equities.
Click to expand...

Thing is though, rates in Japan are at .25% and 5% + in US and elsewhere. It is a big threat to financial markets but provided there are no economic shocks, rates in both Japan & elsewhere make these carry-trades profitable and have a good bit of room for rate changes. Thing is, something could always spark it, like the Russian default that sparked the one in '98.

How funny, there are actually doing a feature on it on Newsnight as I type. There goes my early night....again.
 
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