most people only consider there to be 2 asset classes……property or shares.
there are many others, one of which is currencies.
at the moment the exchange rate for aussie dollars to japanese yen is around 68. a few months ago it was 108.
I have been watching it for 5 years and the lowest I ever saw it was 79. to see it at 68 now is quite a shock.
when you invest in a currency, you effectively borrow the second currency at their rate, and invest the first currency at its rate.
so with AUDJPY, we can borrow from japan at 0.5%, and invest in australia @ 6%. thats positive cashflow of 5.5% p.a.
in addition, if your funds are with a forex broker like Oanda, they will pay you 6% on your account funds.
thats a total of 11.5% p.a with fairly low risk. and thats if you use NO leverage. you could use 50:1 leverage and get 331%, but you would risk a margin call on the slightest AUDJPY drop……….
Im thinking about plonking 50k down @ 2:1
thoughts?
very interesting…
borrowing at low interest and re-investing at high interest is known as a 'carry trade' (see the following for an explanation: http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/) large financial institutions and banks have been doing it for decades with trillions of dollars. There is substantial currency risk involved. You can access it as a retail investor via standard currency trading platforms but the risks involved are significant.
Do your research.
"There is substantial currency risk involved."
at 108 yes of course. or do you mean @ 50x leverage?
but in the mid 60's?
surely you dont really think it will drop to zero?
it could easily double from here, but could it halve to say 33? I very much doubt that!
there is substantial upside on this currency pair right now, and at worst if it stays flat for years, you get mega interest.
a few years back I made a similar call when it was 82. check how that went………..
it's LESS RISKY than investing in the Nikkei.
whats NOT risky right now? even $$$$ in the bank isnt safe!!!!
yes especially if you bank in Iceland
Can't respond in any meaningful fashion as I haven't seen a chart on the currency pair or followed it closely enough, so you may well be correct about the upside etc. that said, I didn't expect to see the XJO at sub 4000 either and that's happened, so my own personal risk profile at present is to sit back as there really is no knowing just how far this will drop just yet…perhaps in another month or two it'll become clearer but right now… wow..crashy,
Living in both countries I follow the exchange between AUD & YEN very carefully. Especially as I receive incomes in both currencies. The exchange rate at one time was 58 and for 500000 yen I sent to OZ I received around $8500. Once the currency rose to around 75 I stopped and just kept the incomes in both countries separate. The AUD went to 105 and I transferred 50K over as I believed at the time the AUD was ready to go down in a big way. Just transferred that money back and the rate I got was 65. Nice little 30K profit in a few months.
Although the idea of borrowing money at low interest is appealing I have never done due to sudden currency fluctuations. Also you might find that being a foreigner you may be borrowing at 2 or 3% and not under 1%. The same situation can be applied to borrowing Yen through NAB etc to buy OZ properties but it is better if your income is also in Yen.
58 would be acceptable on an entry of 65, you never can pick the bottom. that would equate to about 1 years worth of interest.
I would expect the USD to resume the downtrend soon and the yen will get dumped.
Hi, once did profit from USD/YEN. Hairy ride though during the sept 11 days. Everyday passed put USD10 into the interest column & at the end of 3 months I collected about 1500USD & the exchange moved back into my favour when the mess cleared up. Made about $30K after accounting for errors with AUD
Then I went on to buy AUD & hit the jackpot! But before anyone rush out to buy anything, I'll tell you that there was some kind of mad hatter reasoning why I did such an idiotic thing. I would have to eventually buy $500K AUD to pay for my property so I thought I might as well buy when it was 50 cents against USD.
I wouldn't touch USD with a barge pole today but AUD/Yen. Now that might be interesting. Anyone knows how toxic AUD might be?
As for the farmers? They should have hedged.
KYHi Crashy, can you give me the info on Oanda? Where are they located & how do I reki opening an account?
I've done both leveraged & non leveraged forex pair accounts. The leveraged [10:1] made 4x as much but made me lose sleep & kept me working on the computer at night.
AUD/YEN non leveraged looks to be a fairly safe, constant way of getting a bit of arbitrage out of our savings.
Thanks to anyone who cares to comment,
KY
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