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I've been researching money market rates lately, and they've been pretty depressing. Right now, 1.35% is a pretty stellar return.
In this country, that is.
Meanwhile, in Australia, I'm seeing money market rates at 5-6%.
I know there's a good answer for this: Why wouldn't I just ship my excess cash to some nice, stable bank in Sydney or Melbourne, denominated into nice, stable Australian currency?
"Stable" is a relative term. When the USA sneezes (which it is doing right now), the rest of the world comes down with the flu. That very much includes Australia.
Right now here in the states, there's a LOT of money parked in cash, largely due to fear, of say, a stock market crash. Idle money always finds a place to "park" for the duration, and CD's, money market funds, and T-bonds are popular places right now for money to bide its time. Consequently, rates have been driven down by the large availability of idle cash looking for a place to hang out.
I've been researching money market rates lately, and they've been pretty depressing. Right now, 1.35% is a pretty stellar return.
In this country, that is.
Meanwhile, in Australia, I'm seeing money market rates at 5-6%.
I know there's a good answer for this: Why wouldn't I just ship my excess cash to some nice, stable bank in Sydney or Melbourne, denominated into nice, stable Australian currency?
What you're asking about is called a "carry trade". You should be able to find quite a bit of info online.
There's plenty of risk with this stategy so do your DD.
CPG, as the other posters have mentioned, the biggest risk is exchange rates.
Let's say today US $1 nets Aus $1. So you go in, invest $1000 in an Aussie bank at 6% for a 1-year CD. So in 1 year, you have Aus $1060. However, the Aussie dollar has fallen from a so that US $1 = Aus $1.10. When you convert the money back to US $, you only end up with US $963.64. Of course, if the Aussie $ rises instead of falls, your return goes even higher.
In general, though, it looks like you are looking for a safe, guaranteed return larger than domestic US banks would allow, and that won't happen with a foreign bank due to currency exchanges.
The cash rate set by the RBA (Aussie equilivent of the FED) is 4.5% and looks like going up even further next month.
While the aussie economy is very stable (no government debt or unemployment problems hear) its currency is certainly not, just before the GFC 1$ Australian was worth 98 US Cents, it went down to 65c during the GFC and is now worth 98 US cents agiain. If that repeats it self you could loose or gain over 50% of your origional investment because of currency fluctuations alone.
The big players seem to use the Aussie Dollar as some kind of gambling tool. Its the world 5th most traded currency after the US, euro, pound and Yen. Amazing for such a small country.
Last edited by danielsa1775; 09-29-2010 at 09:33 PM..
"Stable" is a relative term. When the USA sneezes (which it is doing right now), the rest of the world comes down with the flu. That very much includes Australia.
You're kidding, right?
Australia was the only developed country that DIDN'T go into recession in 2008-2009.
The Australian government has almost no debt, and has old age pensions partially pre-funded for its citizens. They know what good financial management looks like.
They're not immune from what happens in the global economy, but they're sittin' pretty compared to the US and most other so-called developed countries.
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