- quote -

One word: "1998". Everyone from individual investors to giant hedge
funds was playing emerging markets and international exchange.
Many got burned when two currencies went south overnight
and the US banking system almost collapsed. (The Fed assembled
a consortium to alleviate a hedge fund run by Nobel prize economist
that had bad bets nearly the size of th US GDP.) And one hedge fund
accused of triggering the currency run (Soros) cleaned up.

Dont bet what you cant afford to lose. Kep diverse in this era of
uncertainty.

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On Feb 16, 12:25*am, louise <lou...[at]invalid.invalid> wrote:
- quote -

Last I looked, their website admitted of huge comissions on exchanging
your $ into and then back out of the foreign currency - so much that
many months of interest would be cancelled out.

http://www.currencyshares.com has etfs that appear to do this more
cleanly, and many more are in the works according to news. Or invest
in a stock or bond fund based in foreign currency. Big irrationalities
exist in currencies and interest... that make reward not based on risk
over the last few years, but maybe soon the gravytrain will stop.

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beliavsky[at]aol.com wrote:
- quote -

Well, I just learned something. I know theories aren't all 100% such a
EMH, or such, but didn't know interest rate parity was canceled as a
valid hypothesis. Not a very common topic.
This is how I felt when they canceled Pluto.....
JOE

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On 2008-02-16 12:43:19 -0800, joetaxpayer <joetaxpayer[at]nospam.com> said:

- quote -

This scenario is also an excellent example of the fact someone seeking
financial advice faces two kinds of risk. The first is the risk of the
investment product itself. The second is the risk of buying a product,
maybe itself risky, maybe not, from a person or organization that sells
the product for too much or skims off a lot of the gain -- in this case
5% of an already questionable 12%!

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On Feb 16, 3:43 pm, joetaxpayer <joetaxpa...[at]nospam.com> wrote:
- quote -

You could follow your own advice, Google "uncovered interest parity",
and learn that empirically most of the evidence is *against* this
theory. The second paragraph of my earlier reply summarizes the
evidence. I also posted a message earlier in this newsgroup about
"emerging market bond funds", citing a paper that found they can play
a role in individual investor portfolios.

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Don wrote:

- quote -

Your observation is right. Risk goes with reward. In this particular
case, there is a theory called "interest rate parity" easy to google and
find good definitions. It basically claims that if I buy a foreign CD at
10% instead of a US CD at 5%, (one year), that is a sign the market is
pricing the foreign currency to drop by 5% against the dollar during
that time. You are actually bet against the 'big boys' to buy such a CD
thinking exchange rates are doing something else.
I was going to counter your 'lose your shirt' remark, until I reread OPs
choice of Brazil as one of the countries. The currency risk there may
very well be at that level. (I am no expert on annual exchange rate
volatility, but that is what OP should study to better understand his risk.

JOE
www.blog.joetaxpayer.com

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On 2008-02-16 02:25:24 -0800, louise <louise[at]invalid.invalid> said:

- quote -

High yield and high risk go together, like a hand and glove, like
breathing in and breathing out.
A lot of people as the years go by are quick to believe they have at
last found an exception to this fundamental financial principle, but
over and over again reality bites. That doesn't mean that nobody can
make a killing in foreign currencies and other risky investments. It
means that the chances of doing so are very small and the chances of
losing your shirt are very large.

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On Feb 16, 5:25 am, louise <lou...[at]invalid.invalid> wrote:
- quote -

You are looking at *yields* of 7%, but the *returns* will depend on
currency appreciation or depreciation as well. If Everbank offers you
7% on a Brazillian real 1-year CD (the "real" is the name of their
currency) but in the market Brazillian CDs are yielding about 12%,
according to Bloomberg http://www.bloomberg.com/markets/rates/brazil.html
, the bank is effectively charging you 5% a year. That is exorbitant.
You are better off investing in an emerging market bond fund (EMBF),
where the expense ratio will be smaller and disclosed explicitly.

Historically, for American investors, the higher yields on emerging
market local-currency bonds have been partially but not entirely
offset by depreciation of the underlying currencies vs. the dollar.
EMBFs have some risk and should only represent part of your portfolio.
They are not a substitute for "cash".

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Has anyone had experience purchasing CDs in foreign
currencies from EverBank? I'm looking at returns of 7% and
above from places like Brazil and Iceland. As I understand
it from their website, which is not terribly clear, the
principle is FDIC insured although any fluctuation in
currency as related to the US dollar is your loss or your gain.

Any experience and/or opinions, greatly appreciated.

Louise

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