Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Art of Investing -- Ignore unavailable to you. Want to Upgrade?

To: Sun Tzu who wrote (76)	9/10/1998 7:25:00 AM
From: Daniel Chisholm	Read Replies (1) \| Respond to of 10655

"Yen carry" Sun Tzu, I'm not sure if you wrote this tongue-in-cheek or not: <<I'd say your best bet is barrow all the yen you can. Convert it to USD and pay off your mortgage, your car loans, your business loans, ... I know good ol Alen is promising a rate cut if we don't do well, but hell, he'd have a hard time beating Zero! (note, sadly it takes a lot of money to take advantage of this. If you do know of house that does lend you yen, I want to hear of it ASAP).>> Essentially this is already being done, by "the big boys," and is called "the Yen carry trade". Interestingly enough, a news article describing this trade came out today on Yahoo! - biz.yahoo.com The risk incurred by borrowing in Yen at extremely low interest rates, converting the Yen to dollars, investing the dollars at higher rates, and then paying off the Yen loan at some time in the future when it comes due, is that the Yen might strengthen vs. the dollar. However, one might think that the Yen is unlikely to strengthen, and in fact may very well weaken. If the Yen does weaken, you get an extra bonus - it's even cheaper (in dollars) to pay off the Yen loan that cost you virtually no Yen interest. Instead of directly borrowing Yen and investing it in dollars, one can "synthetically" accomplish almost exactly the same thing by shorting a Yen futures contract. The payoff is very similar to Yen carry trade - you "earn" about 4.8% (annualized) "carry interest" on the notional contract amount, and you fully participate in Dollar/Yen currency gains or losses. If you are convinced that the Yen will weaken against the dollar, then shorting the Yen is a one way bet, on which you get paid interest while you wait. If this sounds too good to be true ;-), you might want to reflect on that! - Daniel