Carry Trade in Iran

Discussion in 'Forex' started by dero, Mar 9, 2009.

  1. dero

    dero

    I was hoping someone could help me understand this as FX and currencies aren't my bag:

    Due to inflation, banks in Iran are now offering interest rates of ~20%, and from what I've read this has been going on for a while.

    On the other hand, the Iranian Rial (IRR) with respect to the dollar has held fairly steady due to CB policy:

    http://finance.yahoo.com/q/bc?s=USDIRR=X&t=5y&l=on&z=m&q=c&c=

    So my question: how the hell is this possible for so long without the CB exhausting their reserves? I don't know the actuarial risks behind the Iranian government, but I can't imagine it being higher than high risk junk bonds, i.e. shouldn't their reserves been depleted from the result of a carry trade?

    Something doesn't add up.

    (This is on the presumption that it would be possible to deposit money in Iranian banks from non-US countries)
     
  2. freo

    freo

  3. aparsai

    aparsai

    Due to high risk I do not recommend investing in Iranian Rial but on the other hand I believe that your view of the situation is not correct.

    As our friend said their exchange rate has been fairly stable in the past 10 to 15 years. Now let's assume that every USD is 10,000 Rials and you purchase $1M USD. If you say invest the amount in an Iranian bank which I do not suggest and if you are American it is forbidden by your Government then you could say turn your $1M USD to $1.2USD in a year as the exchange rate remains the same but you gain 20% profit on your investment.

    The figures are not precise as the 1 year return in Iranian banks is about 8% or less. They have also reduced their long-term interest rates to 16% or less (i.e. annual return on a 5-year fixed investment account). Yet again the return could be significant.