Short USD/ZAR? South African term deposits?

[sinner]

Hi guys,

South African LIBOR is like 11.5% and I just took a quick look 1 month term deposits from Standard Bank Sth Africa are 10%.

Anyone crazy enough to leveraged short USD/ZAR for the 11% returns minus currency appreciation and fees?

Apologies if a thread already exists, couldn't find it.

Not very experienced in using FX for yield, would appreciate some input!

 

[prawn_86]

Sinner thought i would respond here for you. Also, my disclaimer is i have never done this sort of thing either, so im just working from the 'theory' which as we all know can be different in practice.

If your looking at investing in a SA term deposit you will need to have the SA currency. Instantly that involves FX risk. What you need to work out is if the interested differential between the 2 countries is not accounted for in the FX rate.

If you find there is an arb opportunity, then you actually need to hedge the amount you plan on investing, otherwise you will be exposed the the currency risk when the deposit matures nad you want to convert back to AUD.

Also, to avoid setting up an account in SA, talk with your local bank, as you can usually set up Eurodollar (foreign currency) accounts at the same rates, the money is just held by the banks here and invested on your behalf i assume.

Hope that helps, let me know any questions