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+--- Thread: intrest rates ??/ (/showthread.php?tid=547)
intrest rates ??/ - muqtader - 01-03-2004
Few years ago I used to notice that intrest rates which banks used to offer were about 15 percent approxiamately and today if we note they are hardly 2-3 percent... what are the factors which lead to such drastic changes and in pakistan when are they expected to rise again ?
Muqtader Abbas Shah
- CBPian - 01-03-2004
My friend its just all a game of economics...
.... a high rate of return on borrowing cannot be sustained when there is enough liquidity in the market....
.... and supply and demand dictate lower prices i.e. lower interest rates...
... there are so many factors to it that it would need a whole sale discussion of economic policies - fiscal and monetary, exchange rates, inflation, supply and demand of factors, economic growth, reserves position etc etc.
..... hopefully that period wont return...
As far as your investment in local banks is concerned... (I guess this is your point of worry), better invest in real estate or commodities... can also play in forex
cheers
NB. This is no advice,.... do it at your own RISK. )
- derivativetrader - 01-05-2004
I totally agree with CBPian, the changes in interest rates are all due to the economical reasons, as said quite rightly in the previous mail.
However, as CBPian suggested that alternatively, you could invest in FX markets, but yet again there is a risk of volatility in the money market that appreciate/depreciate the price of currency in FX markets. A prime example is recent depreciation in the value of US$ in terms of Euros and Sterling. Also, the Japanese government intervened in the market, through BOJ, and sold and still sells billions of dollars every other month, to raise the value of yen against the big currency.
So, Muqtader, the Forex is quite risky as well, but depending upon your resources / capital, you could always buy derivatives to hedge your risk factor.
Relating to commodities, surely they are also linked with the price of US dollars. You would have noticed recent peaks of gold, other precious and base metals prices, due to the fall in US$.
So, trading itself is not quite easy, if you donât limit your loss.
AHSAN
- derivativetrader - 01-06-2004
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My friend its just all a game of economics...
.... a high rate of return on borrowing cannot be sustained when there is enough liquidity in the market....
.... and supply and demand dictate lower prices i.e. lower interest rates...
... there are so many factors to it that it would need a whole sale discussion of economic policies - fiscal and monetary, exchange rates, inflation, supply and demand of factors, economic growth, reserves position etc etc.
..... hopefully that period wont return...
As far as your investment in local banks is concerned... (I guess this is your point of worry), better invest in real estate or commodities... can also play in forex
cheers
NB. This is no advice,.... do it at your own RISK. )
<hr height=1 noshade id=quote></BLOCKQUOTE id=quote></font id=quote><font face="Verdana, Tahoma, Arial" size=2 id=quote>
Further to my last mail, please find below an article from the Financial Times (London) published on 05-01-04, suggesting another sign of volatility in dollar price.
http//news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1073280784973&p=1012571727085
Dollar slumps to new low against euro and yen
By Jennifer Hughes and Gordon Smith
Published January 5 2004 940 | Last Updated January 5 2004 1436
The first full week of 2004 trading began with the dollar at new lifetime lows against the euro and at three-year lows against the yen as the pressures which weakened the US currency last year continued to weigh.
The euro rose to a high of $1.2695 in early London trading, extending its 5 per cent rise made last month, but eased back to $1.266 in early New York trade. Sterling tracked the euro to a new 11-year high at $1.8045. Traders said the move was based on the dollar's weakness rather than fresh appetite for UK assets.
Comments from Ben Bernanke, a Federal Reserve governor, did little to support the struggling dollar. Mr Bernanke shrugged off concerns over the dollar's depreciation and said the risk of a currency crisis was low. He also reiterated his belief that the lack of inflationary pressures in the US meant interest rates could remain low for some time yet.
Low interest rates make it cheaper for investors to hedge their exposure to US assets which by selling dollars forward, puts further pressure on the currency. Moreover, the US current account deficit needs foreign inflows into its bond market but there are fears investors focusing on yield will instead chose bonds with higher yields elsewhere.
"One could characterize US officialsâ concern, including Mr Bernankeâs, for the dollar as benign neglect," said Marvin Barth, global currency economist at Citigroup. "With little to no inflation in the United States, a significant output gap and a widening current account deficit, a weaker dollar is exactly the right policy prescription."
The yen weakened in Asian trade - the first session of the new year - but strengthened sharply in European trade to new three-year highs as traders tried to out-guess the Bank of Japan.
The Bank of Japan, which was reported to have intervened overnight, pushed the dollar sharply higher from about Y106.75 to Y107.36. The bank, as usual, did not comment on the move. But the dollar selling recommenced almost immediately and the greenback was back at Y106.9 in early European trading - the level which has generally seemed to mark a temporary "line in the sand" below which the BoJ would not let the dollar go. Read more on BoJ's latest intervention.
But in mid-morning London trade, the dollar suddenly slipped heavily, falling to Y106.25 in less than 10 minutes.
"It felt as though the BoJ had just walked away from the table," said one trader. The heavy fall reported triggered stop-loss selling which exacerbated the size of the move. Stop-loss orders are set in the market and triggered automatically when a curency pair hits a pre-set level.
Renewed foreign interest in Japanese equities - which closed on Monday at a two-month high - was reported to be behind the demand for yen.
The euro hit a five-month high against the yen at Y135.75 in Asian trade as the Japanese currency weakened on the suspected intervention. The demand for yen in European trade however pulkled the euro back to Y134.6.
Japan spent Y20,000bn ($170bn) - a record - on intervention last year. Last month, the authorities agreed to raise the ceiling on the amount available for intervention, signalling to the market their intention to continue curbing yen strength.