INR vs. DOLLARS


Well, when I was reading an article below, I felt a great opportunity for starting a new venture and kick itself going. As Rupee appreciates more, which as per the experts view may depreciate, can be a handful source for any new start-ups to earn the initial bucks for their dream companies of future, provided you have both side contacts strong and have the courage to take the risk for going for it. After all, nobody has an authority over the profits and opportunities. Have a nice read…

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As Re firms up, cos gain from borrowing dollar
Prabhakar Sinha TNN

New Delhi: If you are allowed today to borrow in dollars and invest in rupees for short-term in India, you can earn a net return of around 10% per annum, without taking much risk. However, you can’t do this, as in this country full capital account convertibility is still not allowed. But many companies and foreign banks are taking this route to make a killing.
Many foreign banks and finance companies borrow dollars in the international market at around 5.5%. After converting this into rupees, they lend to banks here for short-term at as high as 15%, said a banker. And, these banks andfinance companies would take back the money after maturity and convert it back into dollars, increasing the gains further as rupee is appreciating. In this way, the net return on the investment through this arbitrage route is around 10%.
Rise in the interest rates, along with rupee appreciation have provided this arbitrage opportunity. The banking system is facing acute fund shortages because of the huge gap between credit outgo and deposits received. Besides the RBI’s measures to increase statutory deposit requirements for banks from 5% to 6.5% since December 2006, would absorb around Rs 40,000 crore lendable resources from the system. This has forced banks to borrow at very high rates to meet their commitments.
At the same time, to contain the money supply and bring down inflation, which is hovering around 6.5%, RBI has almost stopped to intervene in the foreign exchange markets. As the supply of dollar is more than demand, it has started depreciating against rupee. Dollar touched seven-year high of Rs 43.06 on March 28. There are speculations that RBI’s measure to increase the inter-bank overnight lending rate to 7.75% and hike CRR by half a percentage point to 6.5%, would further appreciate rupee in future.
RBI’s decision to let rupee appreciate would help contain inflation. If RBI intervenes to mop up excess dollars from the market, it would increase the availability of rupee in the system. This, experts feel, would fuel inflation.
It is believed that RBI’s decision to let the Indian currency appreciate would help contain inflation.
If RBI intervenes to mop up excess dollars from the market, it would increase the availability of rupee in the system. This, experts feel, would fuel inflation. Therefore, the general feeling is that till inflation is brought down below 6%, RBI would not intervene in the forex market. Therefore, till then, rupee would continue to remain at the present level.
The risk in present arbitrage opportunity is appreciation of dollar. But, a source said RBI would not intervene, dollar will not appreciate and the huge interest rate differential will continue to provide arbitrage opportunity.

EASY MONEY

  • Foreign banks and finance firms borrow in international market at around 5.5%.
  • After converting them into rupees, they lend it to banks in India for short term at higher rate of 15%.
  • After maturity, they take the money back and again convert them into dollar, making a net gain of 10%.

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Curtesy: Times of India

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