Okay guys I'm new to the forum so Hi!...well I asked my trader at work about this carry trade and basically his answer was if it's too good to be true then it is and then sent me away to go and find out!.....
Using rates from earlier in the week please see the below and let me know if I'm right...I've asked a few people at work and everyone says on paper it works, but it just seems too good to be true.
P.S the only reason I picked GBP/ISK vs USD/ISK is because I like in the UK..haven't looked at any other pairs but I would expect it works also.
SPOT 145.462 - 145.576
6 month fwd 145.857 - 148.203
Day 1 - £1mio = 145,462,000 ISK
Overnight rates in Iceland are a little over 15%..assume 15%...
after 6 months,
= 156,371,650 ISK
Having bought the 6 month forward, sell ISK @ 148.203
= 1,055,118 GBP
Pay back GBP interest @ 5.5%
= 1,055,118 - 27,500 (cost of borrowing)
= 27,618 GBP (2.7% over 6 months) AFTER you have paid back cost of borrowing.
So no interest rate or fx risk, only credit risk of where you money is? Or have I messed up the calcs?
Using rates from earlier in the week please see the below and let me know if I'm right...I've asked a few people at work and everyone says on paper it works, but it just seems too good to be true.
P.S the only reason I picked GBP/ISK vs USD/ISK is because I like in the UK..haven't looked at any other pairs but I would expect it works also.
SPOT 145.462 - 145.576
6 month fwd 145.857 - 148.203
Day 1 - £1mio = 145,462,000 ISK
Overnight rates in Iceland are a little over 15%..assume 15%...
after 6 months,
= 156,371,650 ISK
Having bought the 6 month forward, sell ISK @ 148.203
= 1,055,118 GBP
Pay back GBP interest @ 5.5%
= 1,055,118 - 27,500 (cost of borrowing)
= 27,618 GBP (2.7% over 6 months) AFTER you have paid back cost of borrowing.
So no interest rate or fx risk, only credit risk of where you money is? Or have I messed up the calcs?