Not many banks do DCI (dual currency investment)? or maybe they call it something different?

You will be affected if the real inflation rate increases. I doubt the RBNZ will decrease IR anytime soon.

When the Reserve Bank of NZ drops the rate, the NZD exchange rate will also follow (ie drop). Your deposit is locked up for 12 months, the question is what exchange rate you will get at the end of 12-months.

Hi AdamG,

How is that going to affect me if the real inflation rate increase? In real world terms or finance terms?

Thanks

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Added on May 28, 2008, 1:26 pmOk. Got it. So in paper value, it's still there. Is it safe for me to say that we stand to benefit if Central Bank decrease the IR after we locked in the higher IR previously?

This post has been edited by achcmy: May 28 2008, 01:26 PM

Firstly you will be exposed to two main risks.

a) Currency risk
IR goes down, currency depreciates. Hence you might lose some money during conversion.

b) Inflation risk
Since no one knows the top of oil (bear in mind, its hurricane season in the US, there is a possibility of a hurricane striking refineries nearby texas/louisaina.), we do not when inflation rate peaks. If the RBNZ decreases rate, and if oil continues its surge towards $150, your purchasing power will decrease.


Try taking a look at the NZ government 3,10 bond yields. Might give you a clue in where the IR is heading.

This post has been edited by AdamG1981: May 28 2008, 01:32 PM

I have another question...if the IR is increase, the currency would increase as well right? cause people would demand for more ringgit is it? im new in this sry..

When the IR increases, the home currency will increase as investments (both foreign and home) will pour in due to higher rate of return. In this case, more Malaysians will dump ringgit and go for better yields such as Singapore dollar or Aussie dollar.

This post has been edited by AdamG1981: May 28 2008, 01:37 PM

i see..k thanks a lot adam ^^

really? i thought lower interest rates encourage more investments....

more companies will borrow more money from banks for business etc... ?

Yes, lower interest rates will increase local consumption, because of cheaper financing. On the downside, cheaper financing will fuel inflation.

What i meant on my statement above is foreign and home funds will put their money in FDs to receive higher interests in their deposits. Do remember that FDs are safe havens. (lowest risk)

This post has been edited by AdamG1981: May 28 2008, 02:14 PM

I don't know about local banks, but mostly foreign banks I familiar with, have it.

I know some local banks have something called "Multi Foreign Currency" FD. Is this the same?

DCI is not a foreign currency FD, it is a dual currency investment.

It works like that:
Let say AUD is 3.11 at the moment (spot rate), normally for counter rate banks will qoute sell/buy 3.15/3.07. So if you convert at counter rate, surely lose out the commission spread charge as you need to convert at 3.15.

For DCI, your currency is not converted directly but it depends.

You put in DCI for one month (usually people put/play 1 month), let say AUD spot rate at 3.11 currently, then DCI can have a strike rate at 3.11 (can varies to have lower) while it will carry the interest rate that significant higher than normal rate let say 12% for that particular day of DCI offering (it varies everyday depends on forex market condition, if market is volatile, then rate normally higher)

At the end of 1 month, they will compare the AUD spot rate with your strike rate of your DCI set, if the AUD rate is higher than 3.11, then your DCI in RM won't be converted but you earn 12% interest rate.
But if AUD is less than 3.11, then your Rm is converted to AUD, still they are giving out 12% interest rate together. Then one can proceed to use the converted AUD to put in AUD FD. In this way, you can save up the commision on counter rate.

the bottom story is investing in Foreign Currency FD cannot earn that much, better get PBank or IOI

Not just yet. Our real GDP might be less than 1%. That's not good for our overall economy. You might be able to pick blue chips at a much lower price than it is today.

cannot say like tat...nothing is for certain.....

Can't compare apple with orange. Risk involved is different.

FD still a FD, for FD, you are almost 99.9% guaranteed on your principal + interest while for stock, none are guaranteed.
So risk involved is different then potential return rate is also different.

yes and no.

you can do couple of buy/sell transaction, say PBank, then the end profit would beat Foreign FD. And don't forget the time frame too.

GDP make no sense to many, that's for sure.

bought RESORT @3.26!!!

most counters esp big guns r bleeding heavily.....