Several articles are available on the web that suggest making a “Risk-free” profit by transferring a low interest paying credit card into a high interest paying savings account.
The interest rates in usa are low for savings or fixed deposit account. At the time of writing this post, The best I got was a 3% for an year. So when all is said and done, the max you could make is 3% gain.
Here in this post, I take a different route. This post is only for Indian citizens. Here is a step by step procedure on how to setup the trade and the risk analysis.
I got several 0% interest rate credit cards that are valid upto 1 year and some with 4.99% for the life until paid in full.
Step I :
1. Open a Citibank Checking account in USA. Also, open a Citibank rupee checking account as well as a Citibank account in INDIA branch. The second India account is for the ease of transfer of money from India to usa. But if you have some other account with other banks, then also it should be OK.
2. Having opened the accounts, transfer a 0% interest rate credit card into a local checking account in usa.
3. Send the money from US branch into your Citibank NRE rupee checking account.
4. Take the money out of your rupee checking account (can be done online or through a beneficiary in India) and put it into a fixed deposit.
5. Fixed deposit interest rates in INDIA vary from 6.5% to 9% and 6 months to more than a year.
6. When the Fixed Deposit matures, Transfer the money through your local bank in INDIA to the one In usa. If you have a Citibank rupee account and a local Citibank in INDIA, the transfer of money to USA is very easy.
Now, Let us analyse the risk associated with such a trade: The major risk is the exchange rate risk. We ideally Rupee to appreciate against the dollar so that we could get more dollars when we convert rupees into dollars at the end of maturity of the Fixed Deposit. We lose if Rupee depreciates against the Dollar, as we would get lesser number of dollars for Rupees.
BegDollars $10,000.00
BegExRate( 1$ = ) INR 43.00
Total Investment(Rs) INR 430,000.00
End Balance INR 544,705.41
Int Rate 9.00%
US int Rate 0%
10 comments:
the unfortunate thing is with the ruppeee blowing up.. you will lose your shirt and will have to pay back a lot more than the 9% interest rate you gained on your account.
Yes. It is stated clearly in my blog that exchange rate risk is THE BIGGEST RISK in the trade. There is NO FREE LUNCH !!! :)
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Why not just short the INRUSD rate through a forex broker. It would require some capital to put aside as margin, but that would hedge away the exchange rate risk, no?
Wht you said is partly right......one can initiate the trade the same way you have described. But for all practical purpose squaring off is an issue, as reverse flow of USD is an unwarranted transaction. The Central Bank, RBI will not allow USD out flow.
What you are describing is an extension of Interest rate parity, i.e. something similair to Yen carry trades. Banks in India quote rates on "LIBOR or MIFOR + basis".....
Usually, spread is almost 200 points. so the kind of opportunity that you have mentioned are ironed out by banks itself. And if an Individual attempts to do so........such practise are already deemed illegitimate.
gotta be kidding
was always curious as to why someone would use Matlab over a more specific trading software but after watching that video I have to say I'm completely floored. They use a simple moving average system as an example and the visualization tools are light years beyond anything else I've ever seen.
The one backtest shows this color coded 3d plot of how the different MA parameters effect a sharpe ratio...just amazing.
Spread Betting
I have been looking for this kind of post. I really want to learn more about this issue and I do think that this is a very important topic.
India and USA trad are very famous all over the world
PVC cards
I had several credit cards 0% interest rate is valid until 1 year and some of them with 4.99% for life until full payment
Standard Cards
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