Japanese interest rate is 0.5% while the turkish savings account interest bear is like 15% Is the value of the NTL really inflating rapidly where the money isn't gaurentied to be "free" or is there something I'm missing? it is like 14.5% interest on borrowed money!
2007-07-27 20:24:12 · 3 answers · asked by intracircumcordei 4 in Business & Finance ➔ Investing
Good question.
Believe it or not. MANY people are doing that. In order to invest money in a Turkish savings account, you must first convert japanese yen into Turkish Liras (TRY). While your money is inside the Turkish savings account, you gain 14.5 percent based on the difference of interest, but you face the risk of the currency devaluating against the currency that you'd like to switch it TRY to in the future.
For example:
Lets say the current rate between JPY and TRY is 60:1, meaning it takes 60 yen to purchase 1 You borrow 6000 JPY and invest it in TRY savings account yielding 14.5 percent return. If TRY devaluates by 10 percent, then 1 TRY will get you 56 JPY. By trading your TRY for JPY, you can get back 5600 JPY. Increase your amount by 14.5 percent and you would get about 6440 JPY. Subtract that by the borrowing interest and you'll have about 6400 JPY. This means your overall gain is about 7 percent.
2007-07-27 20:45:48 · answer #1 · answered by lucstudent 3 · 1⤊ 0⤋
Turkey is not recognised as a stable country for investment therefore the risk/reward ratio is very high.
They have inflationary problems too which is why you can get a 15% return, however to correct inflation requires tinkering with monetary policy and sometimes this means devaluation.
The japanese yen may buy lots of turkish piastre today but may buy very few in 2 years time leaving you with less japanese yen than you started with, even allowing for the 15% interest you received.
The other problem is the difficulty for a private investor to open foreign bank accounts or buy yen to move to Turkey.
2007-07-28 05:21:32 · answer #2 · answered by katerschenko 3 · 0⤊ 0⤋
It would only be a good deal if you got the same conversion rate when it came time to pay back the Japanese bank. This in unlikely to occur.
If you could borrow the money from Japan at the same rate in Euros or Dollars it would be different but that won't happen.
2007-07-28 09:19:49 · answer #3 · answered by Menehune 7 · 0⤊ 0⤋