Get higher interest without carry trade?

Discussion in 'Forex' started by short&naked, Apr 19, 2015.

  1. Is it possible to sell, for example, USD for South African Rand, collect the higher interest rate for say 2 years, and then buy the USD back at the same price it as it was sold for? If the Rand has appreciated after two years, you give up on the upside. If it is lower than the USD, you are saved from the loss.

    What are the problems if any with this trade?
     
  2. xandman

    xandman

    You would be executing a swap. Either the interest rate is adjusted or the currency is lowered.
     
  3. It looks like free money. So it can't exist.

    The two year forward FX price would reflect the expected interest rate differential, such that the initial NPV of the trade would be zero. You'd only make money if you were receiving a floating rate; and the floating rate rose versus the 2 year fixed rate when you started. As the other poster pointed out this is effectively a swap.
     
  4. doggyfx

    doggyfx

    Why not? You could buy Apple shares in 00's forgot about them till today and sell them with tremendous profit.
    Working strategies are often too simple to suppose they can work.
     
  5. Thats not the same thing at all... there was no guarantee that Apple shares would have gone up as much as they have, whereas the OP is talking about a completely risk free yet profitable trade.

    Pure arbitrage opportunities are extremely rare and rarely last long. They're unlikely to exist in the highly liquid FX market except perhaps in some rarely traded crosses.
     
  6. doggyfx

    doggyfx

    Oh, it's a thread about free cheese. Then I'm definitely wrong with my suggestion ;)
     
  7. doggyfx

    doggyfx