Hi there, most of you know what is carry trade. Basically selling a currency with a low interest rate to buy a currency with a higher interest rate to profit from the rates differential.
Swiss National Bank has lowered CHF interest rate to -0.75%. If we sell CHF and buy JPY at a 0% interest rate the differential is a positive 0.75%, which on the paper should make us money, but at least on OANDA swap rates calculator we lose money.
Could anyone, please, explain me why for negative interest rates the rules of the game are different?
Let me think aloud, in a oversimplified way:
Interest rates indicate the cost of the money. If you get a loan the bank use interest rates to calculate how much money you have to give them back. You pay to borrow. At the same time, depositors profit from depositing money in the bank, as they are some how lenders.
With negative interest rates, what SNB is trying is to charge depositors in an attempt to stop all the capitals escaping from other countries to Switzerland, capitals that are pushing the CHF higher which is not what SNB wants. So if they are charging depositors, shouldn't they pay borrowers? It looks to me that negative interest rates are only good for the bank, who charges everyone. Am I right?
Swiss National Bank has lowered CHF interest rate to -0.75%. If we sell CHF and buy JPY at a 0% interest rate the differential is a positive 0.75%, which on the paper should make us money, but at least on OANDA swap rates calculator we lose money.
Could anyone, please, explain me why for negative interest rates the rules of the game are different?
Let me think aloud, in a oversimplified way:
Interest rates indicate the cost of the money. If you get a loan the bank use interest rates to calculate how much money you have to give them back. You pay to borrow. At the same time, depositors profit from depositing money in the bank, as they are some how lenders.
With negative interest rates, what SNB is trying is to charge depositors in an attempt to stop all the capitals escaping from other countries to Switzerland, capitals that are pushing the CHF higher which is not what SNB wants. So if they are charging depositors, shouldn't they pay borrowers? It looks to me that negative interest rates are only good for the bank, who charges everyone. Am I right?