Word: tradings
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...contrast to the 6.5-7% rate of interest one can get from a short-term money market bill in Indonesia, where the 5-year government bond currently yields roughly 9%. The wide gap between the carrying costs of the two currencies is what is fueling the dollar-rupiah carry trade, analysts...
...rupiah could suddenly weaken against the dollar and shave off a significant chunk of a trader's profit, "If your carrying spread is wide enough, you'll comfortably take the currency risk," says Johanna Chua, chief economist with Citigroup in Asia. In fact, Chua says, the dollar carry trade has become so widespread among traders in Asia it has even triggered buying of more exotic and illiquid currencies like the Sri Lankan rupee. "That's the ultimate carry trade," Chua says...
...trade in question is known as the "dollar carry trade" because it allows traders to borrow dollars at low rates while investing in another currency that offers a significantly higher short-term yield. One factor behind its growing popularity in Asia is because the other side of the trade - the currency one buys with the dollars one cheaply borrows - are mostly to be found in the Asia-Pacific region. Most coveted, according to traders, are the Australian dollar, the Indonesian rupiah, and even the infrequently circulated Sri Lankan rupee...
...Until then the dollar carry trade is going to be a decidedly mixed blessing. Because the dollar is so cheaply available today it creates a source of global funding that grew dangerously scarce after the collapse of U.S. investment bank Lehman Brothers in mid-2008. That's the good news...
...news is that to ameliorate the worst side effects of the carry trade, which if unchecked could make Asian exports too expensive to buy, Asian central banks have intervened in foreign exchange markets and done something they are loath to do: Actually increase the dollars in their foreign reserves. "Asian central banks are accumulating even more dollars," says Credit Suisse's Desbarres. According to Citigroup, China's foreign reserves ($2.13 trillion as of June, including forward currency contracts) have increased 11.9% since the collapse of Lehman Brothers in September, 2008. Hong Kong's foreign reserves have shot up by nearly...