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I considered investing in a foreign country bank since I happened upon $20k through some fortunate stock picks. I was advised that this is a _very_ bad idea be

by jo_ 12y ago

I considered investing in a foreign country bank since I happened upon $20k through some fortunate stock picks. I was advised that this is a _very_ bad idea because of the currency fluctuations between countries. You might earn 7% in India (or 19% in the Ukraine), but if suddenly the transaction rate doubles, you've lost half your money.

vijayr 12y ago
19%?? woah, that is crazy.
- vonmoltke 12y ago
  So is parking cash in Ukraine at the moment.
- aestra 12y ago
  Well, not really. You can't just look at interest rates in a vacuum without any context and make a judgement about them. You have to compare it to inflation rates, currency stability, faith in currency, general economic situation, etc. The US had 16% savings interest rate in 1981[1]. Let's, for example, look at the history of credit cards. I am sure you can agree that the 30% interest rate charged today is unreasonably high. It wasn't at a time, and lets look at how it got that way. Back in the late 70s/early 80s we had a recession with double digit inflation while at the same time all states had usury laws that capped credit card interest rates. Inflation was so high that inflation surpassed the highest interest rates companies were allowed to charge. Citibank was "going broke" with this model - they were actually losing money lending at that interest rate at that time. Citibank then convinced South Dakota to drop is usury laws on credit cards and Citi would move there in order to charge an interest rate that beat inflation. Citibank moved there and overnight the stage was set for the US credit card industry to now flourish. "All of their senior people used to say it,'' [then governor of South Dakota] said. "That South Dakota saved Citibank. I believe it did. That South Dakota saved Citibank.'' It was a result of an economic recession with high inflation. There was a Frontline special years ago about this - http://www.pbs.org/wgbh/pages/frontline/shows/credit/more/rise.html http://www.pbs.org/wgbh/pages/frontline/shows/credit/more/ri... - though it is outdated, since credit card legislation has passed that addresses a lot of the topics brought up on the show. you can watch it online for free - I highly recommend you do. Delaware and Nevada followed with similar legislation, so that's why most (all?) credit card companies have a return address in SD, NV, or DE. However, we are no longer in double digit inflation but the old interest rates and legislation stand, for the most part. New laws are slowly reeling in on some credit card practices to keep up with the economic times and current circumstances. [1]http://money.msn.com/saving-money-tips/post.aspx?post=6563607d-ca3b-4a7e-87bb-1dc72f4fc91f http://money.msn.com/saving-money-tips/post.aspx?post=656360... [2] http://en.wikipedia.org/wiki/Marquette_Nat._Bank_of_Minneapolis_v._First_of_Omaha_Service_Corp http://en.wikipedia.org/wiki/Marquette_Nat._Bank_of_Minneapo.... *Disclaimer: I have no idea about the economic situation of Ukraine. I am just making a point about judgements of different times/economies.
danielweber 12y ago
Anyone paying 7% is doing so to compensate for risk.
- jacknews 12y ago
  Yes and no. There are countries that use USD as well as their own currencies. Often the banks offer much better rates than any US bank. Part of that is the risk of the bank collapsing, or the government confiscating deposits, introducing windfall taxes, etc, but part of it simply reflects supply and demand - sometimes those banks find it hard to borrow internationally themselves, and are desperate for deposits.

by jo_ 12y ago

vijayr 12y ago

19%?? woah, that is crazy.

vonmoltke 12y ago
So is parking cash in Ukraine at the moment.
aestra 12y ago
Well, not really. You can't just look at interest rates in a vacuum without any context and make a judgement about them. You have to compare it to inflation rates, currency stability, faith in currency, general economic situation, etc. The US had 16% savings interest rate in 1981[1]. Let's, for example, look at the history of credit cards. I am sure you can agree that the 30% interest rate charged today is unreasonably high. It wasn't at a time, and lets look at how it got that way. Back in the late 70s/early 80s we had a recession with double digit inflation while at the same time all states had usury laws that capped credit card interest rates. Inflation was so high that inflation surpassed the highest interest rates companies were allowed to charge. Citibank was "going broke" with this model - they were actually losing money lending at that interest rate at that time. Citibank then convinced South Dakota to drop is usury laws on credit cards and Citi would move there in order to charge an interest rate that beat inflation. Citibank moved there and overnight the stage was set for the US credit card industry to now flourish. "All of their senior people used to say it,'' [then governor of South Dakota] said. "That South Dakota saved Citibank. I believe it did. That South Dakota saved Citibank.'' It was a result of an economic recession with high inflation. There was a Frontline special years ago about this - http://www.pbs.org/wgbh/pages/frontline/shows/credit/more/rise.html http://www.pbs.org/wgbh/pages/frontline/shows/credit/more/ri... - though it is outdated, since credit card legislation has passed that addresses a lot of the topics brought up on the show. you can watch it online for free - I highly recommend you do. Delaware and Nevada followed with similar legislation, so that's why most (all?) credit card companies have a return address in SD, NV, or DE. However, we are no longer in double digit inflation but the old interest rates and legislation stand, for the most part. New laws are slowly reeling in on some credit card practices to keep up with the economic times and current circumstances. [1]http://money.msn.com/saving-money-tips/post.aspx?post=6563607d-ca3b-4a7e-87bb-1dc72f4fc91f http://money.msn.com/saving-money-tips/post.aspx?post=656360... [2] http://en.wikipedia.org/wiki/Marquette_Nat._Bank_of_Minneapolis_v._First_of_Omaha_Service_Corp http://en.wikipedia.org/wiki/Marquette_Nat._Bank_of_Minneapo.... *Disclaimer: I have no idea about the economic situation of Ukraine. I am just making a point about judgements of different times/economies.

danielweber 12y ago

Anyone paying 7% is doing so to compensate for risk.

jacknews 12y ago
Yes and no. There are countries that use USD as well as their own currencies. Often the banks offer much better rates than any US bank. Part of that is the risk of the bank collapsing, or the government confiscating deposits, introducing windfall taxes, etc, but part of it simply reflects supply and demand - sometimes those banks find it hard to borrow internationally themselves, and are desperate for deposits.