Wednesday, Mar 14, 2007
The dark side of the Carry Trade
FT.com: Hot money brings Iceland to boil
When interest rates move in other countries, a victim may be another country as international investors short (sell) the weak currency, e.g. Sterling to invest in other places where there are higher returns (e.g. Iceland, New Zealand, South Africa). Obviously, one must adjust for risk, but you get the picture. If the BoE don't raise rates to around 8%+, Sterling is gone.
Posted by lvmreader @ 11:02 PM (167 views) Add Comment
5 Comments
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1. Mjs said...
Does anyone think this could cause potential risk to savings accounts such as Ice Save?
2. Mjs said...
Does anyone think this could cause any problems to savings accounts such as Ice save?
3. pedagog said...
Someone help me out here.
Does this mean that when I sell my house, putting the money into an 'Icesave' account is a bad idea? If so where should I safely put it?
(I'm having to move to a more expensive area where I will have to rent)
4. tyrellcorporation said...
Mmmm, I'm not sure what the upshot of this article is either. I have 2 accounts of £30k each with Icesave, should I be worried? I have no idea!
5. lvmreader said...
Currency and monetary policy
Iceland's economy is prone to inflation but remains rather broad-based and highly export-driven. During the 1970s the oil shocks hit Iceland hard. Inflation rose to 43% in 1974 and 59% in 1980, falling to 15% in 1987 but rising to 30% in 1988. Since then, inflation has dramatically fallen, and the current government is committed to tight fiscal measures. The current unemployment rate stands at a record low 1%. Iceland experienced moderately strong GDP growth (3% on average) from 1995 to 2004. Growth in 2005 exceeded 6%. Inflation averaged merely 1.5% from 1993-94, and only 1.7% from 1994-95. Inflation over 2006 topped at 8.6%, with a rate of 6.9% as of January 2007. Standard & Poor's reduced their rating for Iceland from AA- to A+ (long term) in December 2006, following a loosening of fiscal policy by the Icelandic government ahead of the 2007 elections.[3] Foreign debt has especially risen, after a depreciation of the króna, and the possibilities are real for an economic recession.
http://en.wikipedia.org/wiki/Economy_of_Iceland