Carry trade
•Download as PPS, PDF•
0 likes•77 views
The document discusses the concept of "carry trade", which involves borrowing in a market with lower interest rates and investing in a market with higher interest rates to gain from the interest rate differential. However, carry trade also exposes investors to currency risk if exchange rates between the two currencies fluctuate during the investment period. An example is provided where an investor borrows $100 at 2% interest in the US and invests the equivalent in Indian rupees at 7% interest, but could lose money if the rupee weakens against the dollar. The document emphasizes that both gains and losses from carry trade can be magnified by currency movements.
Report
Share
Report
Share
Recommended
Intl parity cond.
The document discusses several concepts related to international finance including:
1) Purchasing power parity, interest rate parity, and the Fisher effect which relate exchange rates, interest rates, and inflation rates between countries.
2) Arbitrage opportunities that can arise from differences in exchange rates quoted by different traders.
3) Conditions like the law of one price that must hold for arbitrage to exist.
4) Absolute and relative forms of purchasing power parity and limitations of the theory.
5) How interest rate parity explains differences between spot and forward exchange rates.
Interest rate parity 1
The Interest Rate Parity states that the difference between interest rates of two countries equals the difference between the forward and spot exchange rates. It plays an essential role in foreign exchange markets by preventing arbitrage opportunities. When returns on two currencies are equal, interest rate parity prevails. Factors like expected inflation, monetary policy, and economic conditions influence market interest rates. Interest rate parity implies that if the domestic interest rate is lower than the foreign rate, domestic investors will invest abroad to benefit, and vice versa if the domestic rate is higher.
Interest Rate Parity and Purchasing Power Parity
The document discusses interest rate parity (IRP) and purchasing power parity (PPP). IRP states that interest rate differences between countries equal the forward exchange rate minus the spot rate. PPP holds that currency exchange rates adjust so goods cost the same across countries when prices are converted to the same currency. Violations of IRP create arbitrage opportunities. Factors like inflation rates, economic conditions, and monetary policies influence IRP and PPP over time. Formulas are provided for calculating IRP and expected future exchange rates under PPP.
Interest rate parity (Global Finance)
Interest rate parity is a theory stating that the interest rate differential between two countries should equal the forward exchange rate premium or discount relative to the spot exchange rate. This establishes a break-even condition where returns on domestic and foreign currency investments are equal after accounting for exchange risk. If interest rate parity is violated, an arbitrage opportunity exists where investors can borrow, invest, and exchange currencies to earn risk-free profits. Kim Deal, a European portfolio manager, should choose to invest in 1-year Japanese yen deposits covered by a 1-year forward contract to hedge exchange risk, as this option provides the highest euro return of €352,005 compared to €352,000 from euro deposits.
International fisher effect
This document discusses the international Fisher effect and interest rate parity. It explains that the Fisher effect postulates a relationship between nominal interest rates and real interest rates adjusted for inflation. According to the Fisher effect, high inflation leads to high nominal interest rates. The document also discusses how interest rate parity argues that identical securities should have the same price when quoted in a common currency, so interest rate differentials between countries tend to be offset by forward exchange rate premiums or discounts.
International parity condition
This document summarizes several international parity conditions:
1) Purchasing power parity states that identical goods should sell for the same price worldwide when accounting for transportation costs, taxes, and other factors. It is a manifestation of the law of one price applied internationally.
2) Absolute and relative purchasing power parity refer to comparing the price of a standard basket of goods across currencies and changes in inflation affecting exchange rates.
3) Interest rate parity or the Fisher effect relates nominal interest rates, real interest rates, and expected inflation rates both within and between countries. It posits that nominal rates equal real rates plus inflation.
Economics sem 2- interest rate parity
This document appears to be a student project on interest rate parity submitted for a university course. It includes a title page with the student's name and details, a declaration signed by the student, an acknowledgements section thanking the professor for guidance, and a table of contents listing the various sections of the project. The sections discuss concepts like covered and uncovered interest rate parity, the assumptions of interest rate parity, and covered interest rate parity specifically. Diagrams and equations are provided to illustrate the concepts.
Foreign Exchange market & international Parity Relations
The document discusses several key concepts related to foreign exchange markets and exchange rate determination. It describes the foreign exchange market as where individuals, firms, banks, and brokers buy and sell foreign currencies. Exchange rates are determined by the demand and supply of currencies based on factors like interest rates, inflation rates, purchasing power parity, and investor psychology. Theories like interest rate parity and purchasing power parity aim to explain exchange rate movements, though other short-term factors also influence rates.
Recommended
Intl parity cond.
The document discusses several concepts related to international finance including:
1) Purchasing power parity, interest rate parity, and the Fisher effect which relate exchange rates, interest rates, and inflation rates between countries.
2) Arbitrage opportunities that can arise from differences in exchange rates quoted by different traders.
3) Conditions like the law of one price that must hold for arbitrage to exist.
4) Absolute and relative forms of purchasing power parity and limitations of the theory.
5) How interest rate parity explains differences between spot and forward exchange rates.
Interest rate parity 1
The Interest Rate Parity states that the difference between interest rates of two countries equals the difference between the forward and spot exchange rates. It plays an essential role in foreign exchange markets by preventing arbitrage opportunities. When returns on two currencies are equal, interest rate parity prevails. Factors like expected inflation, monetary policy, and economic conditions influence market interest rates. Interest rate parity implies that if the domestic interest rate is lower than the foreign rate, domestic investors will invest abroad to benefit, and vice versa if the domestic rate is higher.
Interest Rate Parity and Purchasing Power Parity
The document discusses interest rate parity (IRP) and purchasing power parity (PPP). IRP states that interest rate differences between countries equal the forward exchange rate minus the spot rate. PPP holds that currency exchange rates adjust so goods cost the same across countries when prices are converted to the same currency. Violations of IRP create arbitrage opportunities. Factors like inflation rates, economic conditions, and monetary policies influence IRP and PPP over time. Formulas are provided for calculating IRP and expected future exchange rates under PPP.
Interest rate parity (Global Finance)
Interest rate parity is a theory stating that the interest rate differential between two countries should equal the forward exchange rate premium or discount relative to the spot exchange rate. This establishes a break-even condition where returns on domestic and foreign currency investments are equal after accounting for exchange risk. If interest rate parity is violated, an arbitrage opportunity exists where investors can borrow, invest, and exchange currencies to earn risk-free profits. Kim Deal, a European portfolio manager, should choose to invest in 1-year Japanese yen deposits covered by a 1-year forward contract to hedge exchange risk, as this option provides the highest euro return of €352,005 compared to €352,000 from euro deposits.
International fisher effect
This document discusses the international Fisher effect and interest rate parity. It explains that the Fisher effect postulates a relationship between nominal interest rates and real interest rates adjusted for inflation. According to the Fisher effect, high inflation leads to high nominal interest rates. The document also discusses how interest rate parity argues that identical securities should have the same price when quoted in a common currency, so interest rate differentials between countries tend to be offset by forward exchange rate premiums or discounts.
International parity condition
This document summarizes several international parity conditions:
1) Purchasing power parity states that identical goods should sell for the same price worldwide when accounting for transportation costs, taxes, and other factors. It is a manifestation of the law of one price applied internationally.
2) Absolute and relative purchasing power parity refer to comparing the price of a standard basket of goods across currencies and changes in inflation affecting exchange rates.
3) Interest rate parity or the Fisher effect relates nominal interest rates, real interest rates, and expected inflation rates both within and between countries. It posits that nominal rates equal real rates plus inflation.
Economics sem 2- interest rate parity
This document appears to be a student project on interest rate parity submitted for a university course. It includes a title page with the student's name and details, a declaration signed by the student, an acknowledgements section thanking the professor for guidance, and a table of contents listing the various sections of the project. The sections discuss concepts like covered and uncovered interest rate parity, the assumptions of interest rate parity, and covered interest rate parity specifically. Diagrams and equations are provided to illustrate the concepts.
Foreign Exchange market & international Parity Relations
The document discusses several key concepts related to foreign exchange markets and exchange rate determination. It describes the foreign exchange market as where individuals, firms, banks, and brokers buy and sell foreign currencies. Exchange rates are determined by the demand and supply of currencies based on factors like interest rates, inflation rates, purchasing power parity, and investor psychology. Theories like interest rate parity and purchasing power parity aim to explain exchange rate movements, though other short-term factors also influence rates.
Definition
The document defines coupon rate as the interest rate stated on a bond, expressed as a percentage of the principal. The coupon rate is used to calculate the periodic interest payments made to bondholders until maturity. There is an inverse relationship between bond prices and interest rates - as interest rates rise, bond prices fall and vice versa. Calculating the yield to maturity accounts for the time value of money and all expected future coupon payments. Key risks for bond investors include interest rate risk, reinvestment risk, and credit/default risk if the bond issuer is unable to repay the debt.
relation of PPP and IRP
This document discusses uncovered interest rate parity (UIRP) and covered interest rate parity (CIRP), which relate interest rates between countries to exchange rates. UIRP refers to parity when exposed to exchange rate risk, while CIRP uses forward contracts to eliminate exchange rate risk. The document provides an example where UK interest rates are 2% and Japanese rates are 1%, requiring the pound to depreciate 1% against the yen to avoid arbitrage opportunities. It also discusses purchasing power parity (PPP), which estimates exchange rates needed for currencies to have equal purchasing power based on market baskets of goods. PPP helps minimize misleading international comparisons that can arise from using market exchange rates alone.
parity conditions
The document discusses several parity conditions in international finance that provide an intuitive explanation of the movement of prices and interest rates in different markets in relation to exchange rates. It introduces key concepts like purchasing power parity (PPP), which states that inflation rates should equal changes in exchange rates, and the law of one price, which says identical goods should have the same price when expressed in a common currency. The document contrasts the absolute and relative forms of PPP and provides examples of how PPP can be used to forecast future exchange rates and calculate real exchange rates.
Irp ppp ife
Interest rate parity is a no-arbitrage condition representing an equilibrium state under which investors will be indifferent to interest rates available on bank deposits in two countries. A theory in which the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate. Covered interest arbitrage allows an investor to exploit interest rate differentials between currencies by investing in the higher yielding currency while hedging exchange rate risk through a forward contract. The international fisher effect suggests that interest rate differentials between countries may be the result of differences in expected inflation, and that exchange rates will adjust to changes in expected inflation differentials.
IRP, PPP, IFE
The document discusses interest rate parity and covered interest arbitrage. It provides definitions and explanations of these concepts. Specifically:
1) Interest rate parity is a condition where the interest rate differential between two countries equals the difference between the forward exchange rate and the spot exchange rate.
2) Covered interest arbitrage involves borrowing in the lower yielding currency, converting to the higher yielding currency, and hedging the exchange risk through a forward contract.
3) Market forces will eliminate opportunities for covered interest arbitrage by adjusting interest rates and exchange rates until parity is reached.
Forex
The document discusses foreign exchange markets. It provides information on:
1) The foreign exchange market is a global network that allows currencies to be exchanged. Exchange rates are the prices of currencies relative to each other, such as $1 = Rs. 48.50.
2) Arbitrage is the process of exploiting price differences between markets. If exchange rates differ, arbitragers can buy currency where it's cheaper and immediately sell it where it's more expensive.
3) Foreign exchange transactions involve converting one currency to another and carry exchange rate risk if rates change before settlement. Transactions are settled through payment systems like nostro/vostro accounts and SWIFT.
Bond laddering
Bond laddering is an investment strategy that helps minimize reinvestment risk. It involves creating a bond portfolio with bonds of the same face value but different maturity dates spaced regularly over time. This results in a portfolio where parts of the holdings mature each year, generating steady cash flow that can be reinvested. It also ensures the portfolio is not entirely exposed to interest rate movements at one time, as would be with a portfolio where all bonds mature on the same date.
International parity-conditions-9-feb-2010
This document discusses several international parity conditions that can be used to predict foreign exchange rates:
1. Purchasing power parity (PPP) states that exchange rates should equalize price levels between countries based on a basket of goods.
2. The international Fisher effect (IFE) states that exchange rates adjust to equalize interest rate differentials between countries.
3. Interest rate parity (IRP) focuses on spot and forward exchange rates between countries' money and bond markets and establishes a break-even condition for returns.
4. Forward rates are expected to be an unbiased predictor of future spot rates according to the expectations theory of exchange rates.
These parity conditions are interrelated
Credit spreads
A credit spread refers to the difference in interest rates between a corporate bond and a comparable government bond. For example, a 5-year corporate bond paying 6% interest would have a 1% credit spread over a similar 5-year government bond paying 5% interest. The credit spread represents the additional yield that investors demand for taking on the higher risk of corporate bonds relative to safer government bonds. Different securities have different risk profiles, so investors are compensated proportionately to the risk level of each security through its credit spread.
L Pch17
The document discusses several macroeconomic concepts:
1. Gross Domestic Product (GDP) is the total value of goods and services produced in an economy and has four components: consumption, investment, government spending, and net trade.
2. Economic indicators can be leading, coincident, or lagging in relation to the business cycle.
3. Fiscal policy involves government taxation and spending while monetary policy involves central bank actions to control money supply and interest rates.
4. Stock market indices are leading indicators of business cycles.
Unit 3 vocab
My friend invested $500 with her stock broker to purchase shares of Starbucks, Nike and Michael Kors stocks in order to diversify her portfolio. This diversification protects her investments from losses if one company struggles. After three years, her principle investment had doubled to $1000 due to keeping her portfolio diversified among different stocks and industries.
Understanding Zero Coupon Bonds
Zero coupon bonds are bonds that are issued at a discounted price and redeemed at par value at maturity. For example, if Mr. Rahul invested Rs. 920 in a zero coupon bond that will pay Rs. 1000 after 1 year, his return would be 8.7% per year. Zero coupon bonds provide a fixed return based on the difference between the discounted purchase price and the full par value received at redemption. They allow investors to earn interest on the full par value of the bond even though it was purchased at a discount.
INTERNATIONAL ARBITRAGE & INTEREST RATE PARITY
1) International arbitrage involves capitalizing on price discrepancies between currencies in different locations without taking on risk. Locational arbitrage occurs when a currency can be bought cheaper in one location and immediately sold at a higher price elsewhere.
2) Triangular arbitrage exploits temporary differences between cross-exchange rates of three currencies. Covered interest arbitrage takes advantage of interest rate differentials between countries while hedging against exchange rate risk.
3) Interest rate parity exists when the forward exchange rate offsets the interest rate advantage of one country over another, eliminating riskless profits from covered interest arbitrage. This equalizes returns between countries.
Valuation Of S Ecurities
The document discusses different types of asset valuation including book value, market value, and intrinsic value. It then focuses on bond and stock valuation. For bonds, it describes how to calculate value using the present value of periodic interest payments and repayment of principal. For stocks, it introduces the dividend discount model for valuing common stock assuming infinite holding period and constant dividend growth. Preferred stock is valued similarly using the DDM with 0% growth rate.
Corporate finance Question
This document provides an overview of key concepts related to arbitrage and financial decision making. It discusses how to evaluate investment decisions by comparing costs and benefits using competitive market prices to determine present values. The net present value (NPV) rule states that investors should select projects with the highest NPV. Arbitrage keeps equivalent securities priced the same across markets to avoid opportunities for riskless profits. This enforces the law of one price. The separation principle also indicates that investment and financing decisions can be evaluated separately.
Exchnage rate determination
This document discusses exchange rate determination. It defines exchange rates as the price of one currency in terms of another. Exchange rates are determined by the forces of supply and demand in foreign exchange markets where currencies are bought and sold. The equilibrium exchange rate is the rate at which demand and supply for foreign currencies are equal. Demand for foreign currency arises from payments to foreign countries for imports and investments. Supply comes from exports, investments, and other receipts from abroad. Several factors can influence exchange rates, including relative inflation rates, interest rates, income levels, government controls, market expectations, speculation, and political/economic conditions.
Interest rates
This document defines key financial terms related to interest rates, bonds, and capital budgeting. It provides formulas for calculating simple and compound interest, present value, future value, real and nominal interest rates, yield to maturity, net present value, and internal rate of return. Examples are given for coupon bonds, zero-coupon bonds, treasury bonds, and consol bonds. Factors that can shift the supply and demand of bonds and money are also outlined.
Financial arbitrage
Financial arbitrage involves taking advantage of temporary price differences between the same or similar financial assets traded in different markets. It allows investors to buy assets in a market where the price is low and immediately sell them in another market where the price is higher, thereby locking in a risk-free profit. Arbitrage is possible when the same asset trades at different prices in different markets, when an asset's future price is inconsistent with its present value, or when two identical assets trade at different prices. The practice of arbitrage tends to drive prices between markets to convergence.
Carry trade
Carry trade involves borrowing money in a market with low interest rates and investing in a market with high interest rates to profit from the interest rate differential. However, it also carries currency risk as it involves two different currencies. For carry trade to be profitable, the exchange rate between the two currencies must remain stable. If the currency of investment weakens against the currency of borrowing, the investor can face losses instead of gains.
Bond prices yields
The document summarizes the inverse relationship between bond prices and yields. It explains that when bond prices go down, bond yields go up, and vice versa. This is illustrated with an example where a bondholder Ravi needs cash and sells his Rs. 100 bond to John for Rs. 90. While Ravi was earning 10% returns, John earns 22.2% returns due to the lower price he paid. Therefore, a decrease in bond price results in a higher yield for the buyer. In conclusion, the document states that a bond's yield rises when its price falls, and yield falls when the price rises.
Niraj On FOREX
This time I am with the write up on the Topic, "FOREX"
I hope the write up would be a value addition.
Foreign exchange risk and coverage
This document is a project report submitted for a post-graduate degree in banking and finance. It includes sections on acknowledging those who provided guidance, a table of contents, and an introduction to the meaning and risks associated with foreign exchange trading. The report will examine foreign exchange risk and methods used by banks to manage this risk.
More Related Content
What's hot
Definition
The document defines coupon rate as the interest rate stated on a bond, expressed as a percentage of the principal. The coupon rate is used to calculate the periodic interest payments made to bondholders until maturity. There is an inverse relationship between bond prices and interest rates - as interest rates rise, bond prices fall and vice versa. Calculating the yield to maturity accounts for the time value of money and all expected future coupon payments. Key risks for bond investors include interest rate risk, reinvestment risk, and credit/default risk if the bond issuer is unable to repay the debt.
relation of PPP and IRP
This document discusses uncovered interest rate parity (UIRP) and covered interest rate parity (CIRP), which relate interest rates between countries to exchange rates. UIRP refers to parity when exposed to exchange rate risk, while CIRP uses forward contracts to eliminate exchange rate risk. The document provides an example where UK interest rates are 2% and Japanese rates are 1%, requiring the pound to depreciate 1% against the yen to avoid arbitrage opportunities. It also discusses purchasing power parity (PPP), which estimates exchange rates needed for currencies to have equal purchasing power based on market baskets of goods. PPP helps minimize misleading international comparisons that can arise from using market exchange rates alone.
parity conditions
The document discusses several parity conditions in international finance that provide an intuitive explanation of the movement of prices and interest rates in different markets in relation to exchange rates. It introduces key concepts like purchasing power parity (PPP), which states that inflation rates should equal changes in exchange rates, and the law of one price, which says identical goods should have the same price when expressed in a common currency. The document contrasts the absolute and relative forms of PPP and provides examples of how PPP can be used to forecast future exchange rates and calculate real exchange rates.
Irp ppp ife
Interest rate parity is a no-arbitrage condition representing an equilibrium state under which investors will be indifferent to interest rates available on bank deposits in two countries. A theory in which the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate. Covered interest arbitrage allows an investor to exploit interest rate differentials between currencies by investing in the higher yielding currency while hedging exchange rate risk through a forward contract. The international fisher effect suggests that interest rate differentials between countries may be the result of differences in expected inflation, and that exchange rates will adjust to changes in expected inflation differentials.
IRP, PPP, IFE
The document discusses interest rate parity and covered interest arbitrage. It provides definitions and explanations of these concepts. Specifically:
1) Interest rate parity is a condition where the interest rate differential between two countries equals the difference between the forward exchange rate and the spot exchange rate.
2) Covered interest arbitrage involves borrowing in the lower yielding currency, converting to the higher yielding currency, and hedging the exchange risk through a forward contract.
3) Market forces will eliminate opportunities for covered interest arbitrage by adjusting interest rates and exchange rates until parity is reached.
Forex
The document discusses foreign exchange markets. It provides information on:
1) The foreign exchange market is a global network that allows currencies to be exchanged. Exchange rates are the prices of currencies relative to each other, such as $1 = Rs. 48.50.
2) Arbitrage is the process of exploiting price differences between markets. If exchange rates differ, arbitragers can buy currency where it's cheaper and immediately sell it where it's more expensive.
3) Foreign exchange transactions involve converting one currency to another and carry exchange rate risk if rates change before settlement. Transactions are settled through payment systems like nostro/vostro accounts and SWIFT.
Bond laddering
Bond laddering is an investment strategy that helps minimize reinvestment risk. It involves creating a bond portfolio with bonds of the same face value but different maturity dates spaced regularly over time. This results in a portfolio where parts of the holdings mature each year, generating steady cash flow that can be reinvested. It also ensures the portfolio is not entirely exposed to interest rate movements at one time, as would be with a portfolio where all bonds mature on the same date.
International parity-conditions-9-feb-2010
This document discusses several international parity conditions that can be used to predict foreign exchange rates:
1. Purchasing power parity (PPP) states that exchange rates should equalize price levels between countries based on a basket of goods.
2. The international Fisher effect (IFE) states that exchange rates adjust to equalize interest rate differentials between countries.
3. Interest rate parity (IRP) focuses on spot and forward exchange rates between countries' money and bond markets and establishes a break-even condition for returns.
4. Forward rates are expected to be an unbiased predictor of future spot rates according to the expectations theory of exchange rates.
These parity conditions are interrelated
Credit spreads
A credit spread refers to the difference in interest rates between a corporate bond and a comparable government bond. For example, a 5-year corporate bond paying 6% interest would have a 1% credit spread over a similar 5-year government bond paying 5% interest. The credit spread represents the additional yield that investors demand for taking on the higher risk of corporate bonds relative to safer government bonds. Different securities have different risk profiles, so investors are compensated proportionately to the risk level of each security through its credit spread.
L Pch17
The document discusses several macroeconomic concepts:
1. Gross Domestic Product (GDP) is the total value of goods and services produced in an economy and has four components: consumption, investment, government spending, and net trade.
2. Economic indicators can be leading, coincident, or lagging in relation to the business cycle.
3. Fiscal policy involves government taxation and spending while monetary policy involves central bank actions to control money supply and interest rates.
4. Stock market indices are leading indicators of business cycles.
Unit 3 vocab
My friend invested $500 with her stock broker to purchase shares of Starbucks, Nike and Michael Kors stocks in order to diversify her portfolio. This diversification protects her investments from losses if one company struggles. After three years, her principle investment had doubled to $1000 due to keeping her portfolio diversified among different stocks and industries.
Understanding Zero Coupon Bonds
Zero coupon bonds are bonds that are issued at a discounted price and redeemed at par value at maturity. For example, if Mr. Rahul invested Rs. 920 in a zero coupon bond that will pay Rs. 1000 after 1 year, his return would be 8.7% per year. Zero coupon bonds provide a fixed return based on the difference between the discounted purchase price and the full par value received at redemption. They allow investors to earn interest on the full par value of the bond even though it was purchased at a discount.
INTERNATIONAL ARBITRAGE & INTEREST RATE PARITY
1) International arbitrage involves capitalizing on price discrepancies between currencies in different locations without taking on risk. Locational arbitrage occurs when a currency can be bought cheaper in one location and immediately sold at a higher price elsewhere.
2) Triangular arbitrage exploits temporary differences between cross-exchange rates of three currencies. Covered interest arbitrage takes advantage of interest rate differentials between countries while hedging against exchange rate risk.
3) Interest rate parity exists when the forward exchange rate offsets the interest rate advantage of one country over another, eliminating riskless profits from covered interest arbitrage. This equalizes returns between countries.
Valuation Of S Ecurities
The document discusses different types of asset valuation including book value, market value, and intrinsic value. It then focuses on bond and stock valuation. For bonds, it describes how to calculate value using the present value of periodic interest payments and repayment of principal. For stocks, it introduces the dividend discount model for valuing common stock assuming infinite holding period and constant dividend growth. Preferred stock is valued similarly using the DDM with 0% growth rate.
Corporate finance Question
This document provides an overview of key concepts related to arbitrage and financial decision making. It discusses how to evaluate investment decisions by comparing costs and benefits using competitive market prices to determine present values. The net present value (NPV) rule states that investors should select projects with the highest NPV. Arbitrage keeps equivalent securities priced the same across markets to avoid opportunities for riskless profits. This enforces the law of one price. The separation principle also indicates that investment and financing decisions can be evaluated separately.
Exchnage rate determination
This document discusses exchange rate determination. It defines exchange rates as the price of one currency in terms of another. Exchange rates are determined by the forces of supply and demand in foreign exchange markets where currencies are bought and sold. The equilibrium exchange rate is the rate at which demand and supply for foreign currencies are equal. Demand for foreign currency arises from payments to foreign countries for imports and investments. Supply comes from exports, investments, and other receipts from abroad. Several factors can influence exchange rates, including relative inflation rates, interest rates, income levels, government controls, market expectations, speculation, and political/economic conditions.
Interest rates
This document defines key financial terms related to interest rates, bonds, and capital budgeting. It provides formulas for calculating simple and compound interest, present value, future value, real and nominal interest rates, yield to maturity, net present value, and internal rate of return. Examples are given for coupon bonds, zero-coupon bonds, treasury bonds, and consol bonds. Factors that can shift the supply and demand of bonds and money are also outlined.
Financial arbitrage
Financial arbitrage involves taking advantage of temporary price differences between the same or similar financial assets traded in different markets. It allows investors to buy assets in a market where the price is low and immediately sell them in another market where the price is higher, thereby locking in a risk-free profit. Arbitrage is possible when the same asset trades at different prices in different markets, when an asset's future price is inconsistent with its present value, or when two identical assets trade at different prices. The practice of arbitrage tends to drive prices between markets to convergence.
What's hot (18)
Similar to Carry trade
Carry trade
Carry trade involves borrowing money in a market with low interest rates and investing in a market with high interest rates to profit from the interest rate differential. However, it also carries currency risk as it involves two different currencies. For carry trade to be profitable, the exchange rate between the two currencies must remain stable. If the currency of investment weakens against the currency of borrowing, the investor can face losses instead of gains.
Bond prices yields
The document summarizes the inverse relationship between bond prices and yields. It explains that when bond prices go down, bond yields go up, and vice versa. This is illustrated with an example where a bondholder Ravi needs cash and sells his Rs. 100 bond to John for Rs. 90. While Ravi was earning 10% returns, John earns 22.2% returns due to the lower price he paid. Therefore, a decrease in bond price results in a higher yield for the buyer. In conclusion, the document states that a bond's yield rises when its price falls, and yield falls when the price rises.
Niraj On FOREX
This time I am with the write up on the Topic, "FOREX"
I hope the write up would be a value addition.
Foreign exchange risk and coverage
This document is a project report submitted for a post-graduate degree in banking and finance. It includes sections on acknowledging those who provided guidance, a table of contents, and an introduction to the meaning and risks associated with foreign exchange trading. The report will examine foreign exchange risk and methods used by banks to manage this risk.
interest rate parity
This document discusses interest rate parity theory. It begins by defining spot and forward rates. Spot rates are prices for immediate settlement, while forward rates refer to rates for future currency delivery adjusted for cost of carry. Interest rate parity theory states that interest rate differentials between currencies will be reflected in forward premiums or discounts. The theory prevents arbitrage opportunities by making returns equal whether investing domestically or abroad when measured in the home currency. The document provides an example of covered and uncovered interest rate parity. Covered parity involves hedging exchange rate risk while uncovered parity does not. Empirical evidence shows uncovered parity often fails while covered parity generally holds for major currencies over short time horizons.
Investing
Investing and saving are important concepts for money management. Saving preserves money for future expenses while investing allows money to grow. It is best to balance saving and investing, as going to one extreme can impact financial stability. Investing without saving leaves one vulnerable, while saving without investing means others benefit from the returns. It is suggested to invest surplus funds after maintaining reserves for emergencies. Proper money management through a balance of saving and investing can increase wealth over time.
Investing
Investing and saving are important concepts for money management. Saving preserves money for future expenses while investing allows money to grow. It is best to balance saving and investing, as going to one extreme or the other can impact financial stability. It is suggested to invest surplus funds after keeping some in savings for emergencies. Proper money management through a balance of saving and investing can increase wealth over time.
Portfolio perspectives _volatility_0415
This document discusses how volatility affects savings for retirement over time. It provides two hypothetical investment options that both average 7.5% annual returns but differ in volatility. Investment A fluctuates more from year to year than Investment B. Though the average returns are the same, after 30 years of $10,000 annual contributions growing at 2.5% annually for inflation, Investment A would yield $1,064,089 while Investment B provides over $1,403,593 due to the effects of volatility. Higher volatility causes more severe downturns that reduce overall portfolio growth over the long run. Diversification is presented as the best way to reduce volatility and benefit from steady returns.
Bond prices & their yields
The document explains the inverse relationship between bond prices and yields. It states that when bond prices go down, bond yields go up, and vice versa. This is illustrated with an example where one investor, Ravi, needs to sell his bond for an emergency. The buyer, John, purchases the bond at a lower price than Ravi paid. However, John earns a higher yield since he paid less for the bond that pays the same return. The example shows that when bond prices fall, the yields rise for new buyers, demonstrating the inverse relationship between the two.
Chapter 7Finding the Required Rate of Return for an Invest.docx
Chapter 7
Finding the Required Rate of Return for an Investment
Associated Press
Learning Objectives
A�er studying this chapter, you should be able to:
Explain the significance of required return and its components.
Describe the rela�onship between risk and return and how to measure for both.
Iden�fy how to use required return to determine valua�on.
Processing math: 0%
Ch. 7 Introduction
Investors come in many forms. They may be individuals who invest in corporate stocks, re�rement accounts that invest in bonds, partnerships that invest in apartment
buildings, or corpora�ons that invest in produc�ve projects. One thing all these investors have in common is their desire to increase their wealth, which is done by iden�fying
projects whose value is expected to exceed their cost. If we invest $100 today in a project that produces cash flows worth $125 in today's terms, then we increase our
wealth by $25. Equa�on (7.1) is the basic formula for es�ma�ng the value of an investment, which is found by discoun�ng the expected future cash flows back to today's
equivalent value at a rate of return that is appropriate given the investment's risk. This fundamental formula for assessing value was first introduced in Chapter 2 and further
developed in Chapters 4 and 5, while Chapter 3 explored cash flows in some detail.
One part of the formula that hasn't been covered is how to es�mate the required return that is appropriate to use as the discount rate in the valua�on calcula�on. Finding
the required rate of return is the topic of this chapter (and is expanded upon in Chapter 8).
Processing math: 0%
Like children, who need to be bribed with the promise of a reward
for their good behavior, investors require a worthwhile incen�ve
before they will commit to an investment.
Beyond/SuperStock
7.1 The Building Blocks of the Required Return
In Chapter 2, we introduced the idea that investors are assumed to be ra�onal and risk averse. Because they
are (mostly!) ra�onal, investors will give up control of their money for a period of �me by inves�ng only if they
expect to increase their wealth. Therefore, investors have an almost ins�nctual return requirement as they
invest. For example, a ra�onal investor would always want to earn at least the risk-free rate of return when
inves�ng in some security or project. Otherwise, they would be se�ling for a return lower than what they
could be assured of by simply deposi�ng the funds in a savings account that is guaranteed by both the bank
and the government through the Federal Deposit Insurance Corpora�on (FDIC). The FDIC guarantees the first
$250,000 of funds depos ...
Jason Hartman's Financial Freedom Report newsletter volume_12_issue_5-1
This document discusses the importance of timing when making investment predictions and realizing returns. It argues that the "when" part of predicting investment performance is critically important due to the time value of money. Investments like gold, growth stocks, and speculative real estate rely entirely on uncertain future price increases, so the timing of when those price increases occur determines whether an investor can realize gains. Luck, skill, and patience all impact investment performance, with luck playing a large role in productions spectacular short-term returns. Skill involves structuring investments to limit downside risk while optimizing upside potential. Pairing patience with skill offers the highest probability of long-term investment success by allowing compounded returns to accrue from residual cash flows rather than relying
Beginners Guide to Forex Trading
The document provides an introduction to forex trading, including:
- Forex is the largest financial market allowing 24/5 trading of currency pairs.
- Currency pairs involve buying or selling one currency for another at an exchange rate.
- Traders can go "long" to profit from an appreciating currency or go "short" to profit from a depreciating one.
- Risk management tools like stop losses and position sizing are important for success.
- Forex offers benefits like leverage, low costs, and opportunities to trade in any market direction.
Niraj On International Finance Theory
This document summarizes five theories of international finance:
1) Interest Rate Parity relates spot and forward exchange rates to interest rate differentials between two countries. It states that interest rate differences should equal the forward premium or discount.
2) Purchasing Power Parity argues that exchange rates should adjust so that equivalent goods cost the same across countries after accounting for exchange rates and price levels. Relative PPP focuses on how inflation rate differences impact exchange rate changes.
3) The Fisher Effect describes the relationship between nominal interest rates, real interest rates, and inflation. It posits that nominal rates will adjust one-for-one with expected inflation so that real rates remain unchanged.
4) The International Fisher Effect extends
A comprehensive guide book on Savings and Investment
Lean the following with this guidebook -
1. Key differences between Saving and Investment
2. Basics of Investment Planning
3. Financial Plan - Concepts & factors for Success
4. How to plan for your life-stage
Risk Management & Forex Derivatives
1. The document discusses various topics related to foreign exchange markets and derivatives, including currency exchange rates, currency values, interest rates, currency swaps, and futures markets.
2. A currency swap involves two companies exchanging principal and interest payments on loans denominated in different currencies in order to gain advantages from each country's relative interest rates.
3. Currency futures allow standardized contracts for exchange rates to be traded on an exchange for speculation or hedging purposes, with limits on individual daily trading amounts.
Margin money in derivatives
Margin money refers to the amount of funds that must be deposited by investors in derivatives trading to cover potential losses. The broker holds this money on behalf of the exchange to mitigate risk. In the example provided, investors A and B each need to provide 10% of the futures contract value of Rs. 100 as margin money to the broker. This covers potential price fluctuations of Rs. 10. If the price rises to Rs. 108, investor A profits Rs. 8 and receives their original Rs. 10 margin back. Investor B who lost Rs. 8 has it deducted from their margin, with the remaining Rs. 2 returned. Margin money thus allows derivatives trading to occur without needing full payment upfront.
Investment Basics and Mastering the Art of Side Hustles
Investment Basics and Mastering the Art of Side Hustles - a presentation by Daro Patrick, a business coach and CEO for T4T in Juba
Yasser Al Mimar-Money Management and Stocks Analysis
The document discusses money management and different investment options. It begins with an executive summary that outlines various forms of investments like bonds, stocks, certificates, and Exchange Traded Funds (ETFs). It then discusses how the 1990s stock market downturn led many investors to seek lower risk investments in things like government bonds and ETFs. The rest of the document discusses analyzing individual investment situations and profiles based on factors like character, lifestyle, time horizon, and objectives to determine the best investment options. It provides the author's own analysis as an example.
Explain how you could use foreign financing for your business in a m.pdf
Explain how you could use foreign financing for your business in a manner that would reduce
your exposure to exchange rate risk. Be specific.
Given that you receive periodic payments in foreign currency for your exports, explain how you
could effectively use cash management. That is, explain how you would use the funds as they are
received.
If you had some existing short-term debt, would you prefer to invest the cash in short-term
securities or would you pay off the debt?
Solution
Borrowing and Lending in a Foreign Currency
Transaction exposure emerges when borrowing or lending is done in a foreign currency. If the
foreign currency appreciates, the burden of borrowing will be greater in terms of domestic
currency, while if the foreign currency depreciates, the burden will be lower. Similarly, the
receipt of the lender in case of the appreciation of the foreign currency will be larger in terms of
the domestic currency. If foreign currency depreciates, there will be loss to the lenders in terms
of domestic currency. It is not only the principal but also the amount of interest that changes
owing to changes in the exchange rate.
Foreign exchange risk/exposure management is the process through which finance managers try
to eliminate/reduce the adverse impact of unfavourable changes in the foreign exchange rates to
a tolerable level.
We already know that changes in exchange rate lead to foreign exchange exposure. If such an
exposure results in loss to a firm, it needs to be hedged; that is, it needs to be eliminated or
reduced. The process of hedging is known as the management of exchage rate exposure. Hedging
refers to managing risk to an extent that makes it bearable. In international trade and dealings
foreign exchange play an important role. Fluctuations in the foreign exchange rate can have
significant impact on business decisions and outcomes. Many international trade and business
dealings are shelved or become unworthy due to significant exchange rate risk embedded in
them.
The contractual techniques for hedging foreign exchange exposure are external techniques
involving contractual relationship with the parties outside the firm for insuring against potential
foreign exchange loss. The major contractual hedging techniques include:
1. Hedging through Forward Contracts.
2. Hedging through Currency Futures.
3. Hedging through Currency Options.
4. Hedging through Swaps.
5. Hedging through Money Market Operations.
I. Hedging through Forward Contracts
Historically, the foremost instrument used for exchange rate risk management is the forward
contract. Forward contracts are customized agreements between two parties to fix the exchange
rate for a future transaction. This simple arrangement would easily eliminate exchange rate risk,
but it has some shortcomings, particularly getting a counter party who would agree to fix the
future rate for the amount and time period in question may not be easy. By entering into a
forward rate agreement with a bank, .
presentation1-180117144541.pdf
The document provides an overview of investments, including:
1. It defines investment as exchanging money wealth for tangible wealth with the goal of receiving more money in the future through interest, dividends, or capital gains.
2. Investments are needed to offset inflation and allow money to generate more money through interest or asset appreciation.
3. It distinguishes between investment, speculation, and gambling and defines each. Investment involves risk but is properly analyzed, while speculation and gambling involve uncontrolled risk.
4. It discusses various types of investments including real assets, financial assets, and virtual assets as well as direct and indirect investing.
Similar to Carry trade (20)
Chapter 7Finding the Required Rate of Return for an Invest.docx
Chapter 7Finding the Required Rate of Return for an Invest.docx
Jason Hartman's Financial Freedom Report newsletter volume_12_issue_5-1
Jason Hartman's Financial Freedom Report newsletter volume_12_issue_5-1
A comprehensive guide book on Savings and Investment
A comprehensive guide book on Savings and Investment
Investment Basics and Mastering the Art of Side Hustles
Investment Basics and Mastering the Art of Side Hustles
Yasser Al Mimar-Money Management and Stocks Analysis
Yasser Al Mimar-Money Management and Stocks Analysis
Explain how you could use foreign financing for your business in a m.pdf
Explain how you could use foreign financing for your business in a m.pdf
More from Wealthhunterindia.com
Commodity hedging
The document discusses commodity hedging, which involves taking an opposite position in the futures market to reduce risk from volatile commodity prices. It provides an example of a wheat farmer who sells wheat futures at current prices before harvest to protect against falling prices. If prices do decline, the loss from selling the physical crop is offset by gains in the futures market. The document also gives a detailed example of a corn farmer who hedges by selling corn futures at a higher price before prices drop, allowing him to offset losses and effectively secure a higher selling price than if he had not hedged.
Commercial paper
1) A commercial paper is a short-term unsecured debt instrument issued by corporations to raise funds for meeting short-term liabilities.
2) Commercial papers were introduced in India in 1990 to provide highly rated corporations an alternative to bank borrowing and allow them to directly borrow at lower interest rates from the open market.
3) Only reputable corporations with high credit ratings can issue commercial papers, as they are a lower-cost alternative to bank loans that bypass intermediaries and offer direct market borrowing.
Cheque truncation system (cts)
The Reserve Bank of India introduced the Cheque Truncation System (CTS) to facilitate faster clearing of cheques. Under CTS, cheque images and details are captured electronically at the collecting bank and transmitted instead of physically moving the cheques. This eliminates the need to transport physical cheques, reducing clearing time from an average of 3 days to 1 day and lowering costs. CTS benefits banks by saving time, money and resources spent on physical cheque movement and clearing while reducing the possibility of cheque fraud and loss.
Certificates of deposit
The document discusses Certificates of Deposit (CDs) and how they work. CDs are financial instruments issued by banks at higher interest rates than fixed deposits to attract funds from corporations. This allows banks to borrow money when they do not have enough funds to provide loans. For example, when a bank wants to provide a loan but only has enough funds for part of it, it can issue CDs to corporations to access more funds. It then uses these funds to provide the full loan amount to the borrower. CDs generally mature within one month to five years.
Cash reserve ratio
The Cash Reserve Ratio (CRR) sets the minimum reserves banks must hold as a percentage of customer deposits and notes. Higher CRR requirements mean banks can lend less, thus restricting money supply and economic activity. For example, with a 10% CRR, a Rs. 100 deposit allows Rs. 90 in loans creating Rs. 1000 in money supply. At 20% CRR, the same deposit allows Rs. 80 in loans and Rs. 500 total money supply. Central banks raise CRR to reduce inflation from excess spending, and lower it to stimulate growth by allowing more bank lending and money creation. CRR thus controls money supply and economic conditions through its impact on bank lending activity.
Bottom fishing
Raj observed ragpickers searching through garbage for valuable items, reminding him of "bottom fishing" in investing. Bottom fishing refers to identifying stocks that are undervalued when markets decline due to negative macroeconomic news, creating pessimism. These undervalued stocks can yield high returns when conditions improve. The document explains bottom fishing is finding good companies with prices below intrinsic value when markets hit bottom periods of low prices.
Bonus shares vs. stock split.pptx
The document compares and contrasts bonus shares and stock splits. Bonus shares involve a company issuing new shares from reserves to existing shareholders, which increases the number of shares but keeps the total market capitalization the same. A stock split reduces the price per share by dividing existing shares into more shares, without changing the total market capitalization, to increase liquidity for investors. Both are seen positively by the market as they can indicate a company's growth and profitability.
Bonus shares vs. stock split
The document compares and contrasts bonus shares and stock splits. Bonus shares involve a company issuing new shares from reserves to existing shareholders, which increases the number of shares but keeps the total market capitalization the same. A stock split reduces the price per share by dividing existing shares into more shares, without changing the total market capitalization, in order to increase liquidity for investors. Both are positive for the market as they indicate a company's growth and profitability.
Bitcoin
This document provides an overview of Bitcoin, including:
- Bitcoin is a form of digital currency that exists online and allows users to send and receive payments instantly worldwide.
- The value of Bitcoin is determined purely by supply and demand as there is no central authority, so its value fluctuates significantly relative to traditional currencies.
- Users can obtain Bitcoin by selling goods/services for Bitcoin, buying/selling Bitcoin on exchanges, or exchanging traditional currencies for Bitcoin through their Bitcoin wallet.
Beta
Beta is a measure of the volatility, or systematic risk, of a security or portfolio compared to the market as a whole. A beta of 1 means that the security's price will move with the market. A beta of less than 1 means the security will be less volatile than the market, while a beta greater than 1 indicates that the security will be more volatile than the market. For example, a stock with a beta of 1.2 is theoretically 20% more volatile than the overall market. Understanding a stock's beta helps provide context for its expected performance compared to the broader financial market.
Base effect
The document discusses the concept of base effect as it relates to inflation rates. It provides an example showing that even if prices do not change from one period to the next, reported inflation can be higher due simply to a lower base rate of inflation in the previous year. Specifically, if the inflation rate was 5% last year but 10% the year before, the inflation rate this year could be reported as higher than 5% even with no price changes, due to the lower base of the earlier year. In other words, base effect refers to how inflation in the corresponding period of the previous year can impact reported inflation figures today.
Balanced funds
This document discusses balanced funds, which invest in a mix of equity and debt assets. Balanced funds aim to provide growth potential through equity exposure while also offering stability from fixed-income debt holdings. They seek to achieve a better risk-return tradeoff than pure equity or debt funds by diversifying across these two asset classes. The balanced funds allocation is typically 65-75% equity and 25-35% debt, capturing upside from stocks while reducing volatility through bonds.
Balance of payments
This document provides an overview of a country's Balance of Payments (BoP) account. It discusses that just like individuals, countries must also account for all financial transactions with other countries. A BoP account is divided into a current account and a capital account. The current account tracks exports/imports of goods and services, as well as transfers like remittances. The capital account covers long-term investments and short-term flows like stock purchases. Surpluses or deficits in these accounts provide insight into a country's economic strengths and weaknesses. An overall BoP surplus or deficit is most important, as it indicates a nation's financial position globally.
Bailout package
The document discusses bailout packages for companies that default on their debt. It explains that a bailout package creates a fund, usually with government help, to provide money to the debt-ridden company. This allows the company time to reform its processes and manage its debt obligations, essentially taking out a new loan to pay an old one. If a bailout does not occur, the company risks defaulting which can hurt investors and the company's ability to raise resources. The goal of a bailout is to give the company time to restructure its business plan to lower costs, increase profits, and eventually repay its debts.
What Is Mutual fund ?
A mutual fund is a pool of money managed by professionals to invest in securities like stocks and bonds. Investors purchase units of the fund. Benefits include professional management, diversification, liquidity, and flexibility. Fees can be front-end loads or back-end loads. Funds invest in major asset classes like money market, bonds, balanced, dividend, equity, and specialty funds. Performance is measured using models like Treynor, Sharpe, Jensen, and Fama that consider risk-adjusted returns. Mutual funds have grown significantly in India in recent years as more savings are channeled into the sector.
Bailout package
Wealthhunterindia.com is one of the leading financial services provider in India offering range solutions that meet various customer needs through various financial products like Mutual Fund, Insurance, Fixed Deposit, and Loans.
Started in the year 2003, Wealthhunterindia.com is today an established name in the financial service provider market of India.
American depository receipts
Wealthhunterindia.com is one of the leading financial services provider in India offering range solutions that meet various customer needs through various financial products like Mutual Fund, Insurance, Fixed Deposit, and Loans.
Started in the year 2003, Wealthhunterindia.com is today an established name in the financial service provider market of India.
More from Wealthhunterindia.com (17)
Recently uploaded
What is Digital Literacy? A guest blog from Andy McLaughlin, University of Ab...
What is Digital Literacy? A guest blog from Andy McLaughlin, University of Aberdeen
Bed Making ( Introduction, Purpose, Types, Articles, Scientific principles, N...
Topic : Bed making
Subject : Nursing Foundation
Traditional Musical Instruments of Arunachal Pradesh and Uttar Pradesh - RAYH...
Traditional Musical Instruments of Arunachal Pradesh and Uttar Pradesh
Constructing Your Course Container for Effective Communication
Communicating effectively and consistently with students can help them feel at ease during their learning experience and provide the instructor with a communication trail to track the course's progress. This workshop will take you through constructing an engaging course container to facilitate effective communication.
Chapter wise All Notes of First year Basic Civil Engineering.pptx
Chapter wise All Notes of First year Basic Civil Engineering
Syllabus
Chapter-1
Introduction to objective, scope and outcome the subject
Chapter 2
Introduction: Scope and Specialization of Civil Engineering, Role of civil Engineer in Society, Impact of infrastructural development on economy of country.
Chapter 3
Surveying: Object Principles & Types of Surveying; Site Plans, Plans & Maps; Scales & Unit of different Measurements.
Linear Measurements: Instruments used. Linear Measurement by Tape, Ranging out Survey Lines and overcoming Obstructions; Measurements on sloping ground; Tape corrections, conventional symbols. Angular Measurements: Instruments used; Introduction to Compass Surveying, Bearings and Longitude & Latitude of a Line, Introduction to total station.
Levelling: Instrument used Object of levelling, Methods of levelling in brief, and Contour maps.
Chapter 4
Buildings: Selection of site for Buildings, Layout of Building Plan, Types of buildings, Plinth area, carpet area, floor space index, Introduction to building byelaws, concept of sun light & ventilation. Components of Buildings & their functions, Basic concept of R.C.C., Introduction to types of foundation
Chapter 5
Transportation: Introduction to Transportation Engineering; Traffic and Road Safety: Types and Characteristics of Various Modes of Transportation; Various Road Traffic Signs, Causes of Accidents and Road Safety Measures.
Chapter 6
Environmental Engineering: Environmental Pollution, Environmental Acts and Regulations, Functional Concepts of Ecology, Basics of Species, Biodiversity, Ecosystem, Hydrological Cycle; Chemical Cycles: Carbon, Nitrogen & Phosphorus; Energy Flow in Ecosystems.
Water Pollution: Water Quality standards, Introduction to Treatment & Disposal of Waste Water. Reuse and Saving of Water, Rain Water Harvesting. Solid Waste Management: Classification of Solid Waste, Collection, Transportation and Disposal of Solid. Recycling of Solid Waste: Energy Recovery, Sanitary Landfill, On-Site Sanitation. Air & Noise Pollution: Primary and Secondary air pollutants, Harmful effects of Air Pollution, Control of Air Pollution. . Noise Pollution Harmful Effects of noise pollution, control of noise pollution, Global warming & Climate Change, Ozone depletion, Greenhouse effect
Text Books:
1. Palancharmy, Basic Civil Engineering, McGraw Hill publishers.
2. Satheesh Gopi, Basic Civil Engineering, Pearson Publishers.
3. Ketki Rangwala Dalal, Essentials of Civil Engineering, Charotar Publishing House.
4. BCP, Surveying volume 1
Hindi varnamala | hindi alphabet PPT.pdf
हिंदी वर्णमाला पीपीटी, hindi alphabet PPT presentation, hindi varnamala PPT, Hindi Varnamala pdf, हिंदी स्वर, हिंदी व्यंजन, sikhiye hindi varnmala, dr. mulla adam ali, hindi language and literature, hindi alphabet with drawing, hindi alphabet pdf, hindi varnamala for childrens, hindi language, hindi varnamala practice for kids, https://www.drmullaadamali.com
How to Setup Warehouse & Location in Odoo 17 Inventory
In this slide, we'll explore how to set up warehouses and locations in Odoo 17 Inventory. This will help us manage our stock effectively, track inventory levels, and streamline warehouse operations.
How to Create a More Engaging and Human Online Learning Experience
How to Create a More Engaging and Human Online Learning Experience Wahiba Chair Training & Consulting
Wahiba Chair's Talk at the 2024 Learning Ideas Conference. LAND USE LAND COVER AND NDVI OF MIRZAPUR DISTRICT, UP
This Dissertation explores the particular circumstances of Mirzapur, a region located in the
core of India. Mirzapur, with its varied terrains and abundant biodiversity, offers an optimal
environment for investigating the changes in vegetation cover dynamics. Our study utilizes
advanced technologies such as GIS (Geographic Information Systems) and Remote sensing to
analyze the transformations that have taken place over the course of a decade.
The complex relationship between human activities and the environment has been the focus
of extensive research and worry. As the global community grapples with swift urbanization,
population expansion, and economic progress, the effects on natural ecosystems are becoming
more evident. A crucial element of this impact is the alteration of vegetation cover, which plays a
significant role in maintaining the ecological equilibrium of our planet.Land serves as the foundation for all human activities and provides the necessary materials for
these activities. As the most crucial natural resource, its utilization by humans results in different
'Land uses,' which are determined by both human activities and the physical characteristics of the
land.
The utilization of land is impacted by human needs and environmental factors. In countries
like India, rapid population growth and the emphasis on extensive resource exploitation can lead
to significant land degradation, adversely affecting the region's land cover.
Therefore, human intervention has significantly influenced land use patterns over many
centuries, evolving its structure over time and space. In the present era, these changes have
accelerated due to factors such as agriculture and urbanization. Information regarding land use and
cover is essential for various planning and management tasks related to the Earth's surface,
providing crucial environmental data for scientific, resource management, policy purposes, and
diverse human activities.
Accurate understanding of land use and cover is imperative for the development planning
of any area. Consequently, a wide range of professionals, including earth system scientists, land
and water managers, and urban planners, are interested in obtaining data on land use and cover
changes, conversion trends, and other related patterns. The spatial dimensions of land use and
cover support policymakers and scientists in making well-informed decisions, as alterations in
these patterns indicate shifts in economic and social conditions. Monitoring such changes with the
help of Advanced technologies like Remote Sensing and Geographic Information Systems is
crucial for coordinated efforts across different administrative levels. Advanced technologies like
Remote Sensing and Geographic Information Systems
9
Changes in vegetation cover refer to variations in the distribution, composition, and overall
structure of plant communities across different temporal and spatial scales. These changes can
occur natural.
Gender and Mental Health - Counselling and Family Therapy Applications and In...
A proprietary approach developed by bringing together the best of learning theories from Psychology, design principles from the world of visualization, and pedagogical methods from over a decade of training experience, that enables you to: Learn better, faster!
Walmart Business+ and Spark Good for Nonprofits.pdf
"Learn about all the ways Walmart supports nonprofit organizations.
You will hear from Liz Willett, the Head of Nonprofits, and hear about what Walmart is doing to help nonprofits, including Walmart Business and Spark Good. Walmart Business+ is a new offer for nonprofits that offers discounts and also streamlines nonprofits order and expense tracking, saving time and money.
The webinar may also give some examples on how nonprofits can best leverage Walmart Business+.
The event will cover the following::
Walmart Business + (https://business.walmart.com/plus) is a new shopping experience for nonprofits, schools, and local business customers that connects an exclusive online shopping experience to stores. Benefits include free delivery and shipping, a 'Spend Analytics” feature, special discounts, deals and tax-exempt shopping.
Special TechSoup offer for a free 180 days membership, and up to $150 in discounts on eligible orders.
Spark Good (walmart.com/sparkgood) is a charitable platform that enables nonprofits to receive donations directly from customers and associates.
Answers about how you can do more with Walmart!"
BÀI TẬP BỔ TRỢ TIẾNG ANH LỚP 9 CẢ NĂM - GLOBAL SUCCESS - NĂM HỌC 2024-2025 - ...
BÀI TẬP BỔ TRỢ TIẾNG ANH LỚP 9 CẢ NĂM - GLOBAL SUCCESS - NĂM HỌC 2024-2025 - ...Nguyen Thanh Tu Collection
https://app.box.com/s/tacvl9ekroe9hqupdnjruiypvm9rdaneANATOMY AND BIOMECHANICS OF HIP JOINT.pdf
it describes the bony anatomy including the femoral head , acetabulum, labrum . also discusses the capsule , ligaments . muscle that act on the hip joint and the range of motion are outlined. factors affecting hip joint stability and weight transmission through the joint are summarized.
RHEOLOGY Physical pharmaceutics-II notes for B.pharm 4th sem students
Physical pharmaceutics notes for B.pharm students
How to deliver Powerpoint Presentations.pptx
"How to make and deliver dynamic presentations by making it more interactive to captivate your audience attention"
Recently uploaded (20)
What is Digital Literacy? A guest blog from Andy McLaughlin, University of Ab...
What is Digital Literacy? A guest blog from Andy McLaughlin, University of Ab...
Bed Making ( Introduction, Purpose, Types, Articles, Scientific principles, N...
Bed Making ( Introduction, Purpose, Types, Articles, Scientific principles, N...
Traditional Musical Instruments of Arunachal Pradesh and Uttar Pradesh - RAYH...
Traditional Musical Instruments of Arunachal Pradesh and Uttar Pradesh - RAYH...
Constructing Your Course Container for Effective Communication
Constructing Your Course Container for Effective Communication
Chapter wise All Notes of First year Basic Civil Engineering.pptx
Chapter wise All Notes of First year Basic Civil Engineering.pptx
How to Setup Warehouse & Location in Odoo 17 Inventory
How to Setup Warehouse & Location in Odoo 17 Inventory
How to Create a More Engaging and Human Online Learning Experience
How to Create a More Engaging and Human Online Learning Experience
LAND USE LAND COVER AND NDVI OF MIRZAPUR DISTRICT, UP
LAND USE LAND COVER AND NDVI OF MIRZAPUR DISTRICT, UP
NEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptx
NEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptx
Gender and Mental Health - Counselling and Family Therapy Applications and In...
Gender and Mental Health - Counselling and Family Therapy Applications and In...
Liberal Approach to the Study of Indian Politics.pdf
Liberal Approach to the Study of Indian Politics.pdf
Walmart Business+ and Spark Good for Nonprofits.pdf
Walmart Business+ and Spark Good for Nonprofits.pdf
BÀI TẬP BỔ TRỢ TIẾNG ANH LỚP 9 CẢ NĂM - GLOBAL SUCCESS - NĂM HỌC 2024-2025 - ...
BÀI TẬP BỔ TRỢ TIẾNG ANH LỚP 9 CẢ NĂM - GLOBAL SUCCESS - NĂM HỌC 2024-2025 - ...
RHEOLOGY Physical pharmaceutics-II notes for B.pharm 4th sem students
RHEOLOGY Physical pharmaceutics-II notes for B.pharm 4th sem students
Carry trade
- 2. Rising interest rates come as bad news for those who wish to take a home loan or a car loan. However, rising interest rates bring several opportunities with them as well… CARRY TRADE
- 3. CARRY TRADE And one opportunity in this regard is that of ‘Carry Trade’, which essentially means borrowing in one market where interest rates are lower and investing in another market where interest rates are high and thereby making a gain.
- 4. CARRY TRADE But it is not that simple because it involves two different currencies. One currency is of the country where interest rates are low while the other currency is of the country where interest rates are high.
- 5. CARRY TRADE And for ‘Carry Trade’ to be profitable, it is crucial that the exchange rates between the countries remain stable. Otherwise instead of a gain one could land up making a serious loss. Thus ‘Carry Trade’ is not devoid of risk.
- 6. CARRY TRADE Now, as we always do, let’s try and get a better understanding of the concept with the help of an example. Lets assume that the interest rate in US is 2% whereas is in India it is 7% And let’s say someone borrows $100 in USA to invest in India at 7%. It is evident that the differential of 5% (7% - 2%) is the opportunity to make a profit for taking an exchange rate risk.
- 7. Let’s assume the exchange rate is Rs 50 = $1. Now if someone in the US wants to invest in India, he has to invest Indian Rupees for which he has to purchase Indian Rupees. So if the amount in question is $100, then as per assumed exchange rate of Rs 50, it would amount to Rs 5000. CARRY TRADE
- 8. So when Rs 5000 is invested for one year in India at 7%, it would earn an interest of Rs 7% x 5000 = Rs 350. Thus at the end of the period the total amount would be Rs 5350. On conversion assuming no change in exchange rate, it would be $ 5350/50 = $107 or a net earning of $7. Now had the investment been made in the USA itself at 2%, it would have earned net $2 only. Hence by participating in carry trade an additional $5 profit opportunity emerged because of differential interest rates between two countries. CARRY TRADE
- 9. But here we have made a huge assumption that the exchange rate remained stable across the investment time period. This however may not be the case most of the time & in the event of exchange rate variation, the consequence can be painful for the investor. CARRY TRADE
- 10. Let’s see this by looking at the same example. We had assumed the exchange rate as Rs 50 = $1 However, if in the interim period the Rupee grew stronger to Rs 40, let’s see what happens to the investment… CARRY TRADE
- 11. At 7% we saw that the investor in our example made Rs 350 and the final amount that he received was 5350. At the exchange rate of Rs 50 = $1 he received $ 107. However it the rupee grew weaker in the interim period to Rs 60 = $ 1, he would now receive only $ 5350/60 = $ 89.16. Thus he would actually make a loss of nearly $11 instead of a gain of $2 he would have made had he invested in USA itself. CARRY TRADE
- 12. This is the currency risk that one has to take in carry trade. If the currency of investment becomes weaker the consequences for the investor are painful and if the currency on the other hand were to get stronger his gains to would get stronger. CARRY TRADE
- 13. Conversely, if the exchange rate had become Rs. 40 = $1,he would actually have made USD 5350*/40$ =$133.75 which would have given him a significant gain of $33.75 vs. $2 ifhe had invested in USA itself. CARRY TRADE Please refer earlier slides o find out how the amount 5350 was worked out.
- 14. Since ‘Carry Trade’ involves borrowing in one market to fund investments in another market, both ‘gains’ and ‘losses’ can get magnified due to the currency fluctuations. CARRY TRADE
- 15. However, in real life, the moment the traders get a feel that exchange rates are changing unfavorably, they rapidly unwind their positions by withdrawing their investments, and converting them into dollars. This is famously known as ‘Carry Trade Unwinding’. CARRY TRADE
- 16. While we have explained ‘Carry Trade’ in fixed income investment in our example, one must understand that ‘Carry Trade’ also refers to investments in any other asset class like shares, commodity, real estate, etc in one country by taking leverage from another country. CARRY TRADE
- 17. Hope you have understood the concept of ‘Carry Trade’. CARRY TRADE
- 18. Please send your feedback to professor@tataamc.com
- 19. DISCLAIMER The views expressed in this lesson are for information purposes only and do not construe to be any investment, legal or taxation advice. The lesson is a conceptual representation and may not include several nuances that are associated and vital. The purpose of this lesson is to clarify the basics of the concept so that readers at large can relate and thereby take more interest in the product / concept. In a nutshell, Professor Simply Simple lessons should be seen from the perspective of it being a primer on financial concepts. The contents are topical in nature and held true at the time of creation of the lesson. This is not indicative of future market trends, nor is Tata Asset Management Ltd. attempting to predict the same. Reprinting any part of this material will be at your own risk. Tata Asset Management Ltd. will not be liable for the consequences of such action. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.