Is it possible or advisable to get loans in a foreign country where interest rates are lower and inv

GarrettKimmel

GarrettKimmel

I have a cousin in Brazil and he says they happen to have one of the highest interest rates of the world. Dollar is also reaching the moon these days. Is it a good idea for him to leverage an investment getting cheap loans abroad, invest in, like, Treasury bonds (in Portuguese), and reap the difference?

So, before I even start to research the taxes for the money transfers back and forth, I would like to know if this is usual, if there is some criminal offense in this that I may be overlooking, if there are specialized companies or proffessionals that may make things easier, or if it's even possible to get loans in a foreign country where I never laid my feet. I haven't found anything about this specific subject online and don't even know how to research it. If you have any information or links, I thank you.
 
What you're describing is a "carry trade". Easy to imagine how one might profit, but has significant currency risk. If the wrong currency appreciates/tanks, the losses can be great.

Example.... Years a go I had an Hispanic client who was enticed by Mexico's 24% interest rates. Client was all hopped about that and asked my advice. I explained the currency risk (including, "if they have to offer 24% interest rates to attract capital, they've got big troubles... and the risk of investing there is high"), but he liquidated virtually everything he could to buy the Mexican bill/CD, whatever it was. One year later, he'd made his 24% but lost money because of the currency devaluation when he converted his Pesos back into $USDs.

That wasn't exactly a "carry trade", as he didn't borrow $USDs to invest in Mexico... but the same principle/risk applies.
 
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GarrettKimmel said:
I have a cousin in Brazil and he says they happen to have one of the highest interest rates of the world. Dollar is also reaching the moon these days. Is it a good idea for him to leverage an investment getting cheap loans abroad, invest in, like, Treasury bonds (in Portuguese), and reap the difference?

So, before I even start to research the taxes for the money transfers back and forth, I would like to know if this is usual, if there is some criminal offense in this that I may be overlooking, if there are specialized companies or proffessionals that may make things easier, or if it's even possible to get loans in a foreign country where I never laid my feet. I haven't found anything about this specific subject online and don't even know how to research it. If you have any information or links, I thank you.
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In Brasil, we say all the time: "Se conselho fosse bom, não se dava, se vendia", which means something like: "If advice were something good, it would be sold, not given". That being said, STAY AWAY FROM BRASIL...LOL. I´m brazilian, born and raised and I got out of that dump at the beginning of this year, never to return... The government is socialist, has been the same for the last 13 years and will probably not change soon.. Inflation rates are through the roof and the BRL is more devalued than ever before... That S** will soon enough turn into Cuba or Venezuela.. SO, IF the government doesn´t default (and that´s a big IF) with all that´s been said, that carry trade of yours has huge chances of going south anyway... LOL Just an opinion...
 
NeoTrader said:
In Brasil, we say all the time: "Se conselho fosse bom, não se dava, se vendia", which means something like: "If advice were something good, it would be sold, not given". That being said, STAY AWAY FROM BRASIL...LOL. I´m brazilian, born and raised and I got out of that dump at the beginning of this year, never to return... The government is socialist, has been the same for the last 13 years and will probably not change soon.. Inflation rates are through the roof and the BRL is more devalued than ever before... That S** will soon enough turn into Cuba or Venezuela.. SO, IF the government doesn´t default (and that´s a big IF) with all that´s been said, that carry trade of yours has huge chances of going south anyway... LOL Just an opinion...
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Brazil has had a history of repeated, huge currency devaluations. Any American who invests there is either a fool or an inveterate gambler.
 
Scataphagos said:
Brazil has had a history of repeated, huge currency devaluations. Any American who invests there is either a fool or an inveterate gambler.
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Yep.... and another "joy" in brazilian history: the government HAS IN FACT defaulted before...:)
 
BR will default or be bailed-out in the next five years. Govt debt to GDP has broken the 2002 high and stands at roughly 70% (if you can believe the govt statistics). The IMF gave BR >$30B in 2002/3 and the FX still lost over 40%. 40 > 17.
 
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GarrettKimmel said:
I have a cousin in Brazil and he says they happen to have one of the highest interest rates of the world. Dollar is also reaching the moon these days. Is it a good idea for him to leverage an investment getting cheap loans abroad, invest in, like, Treasury bonds (in Portuguese), and reap the difference?

So, before I even start to research the taxes for the money transfers back and forth, I would like to know if this is usual, if there is some criminal offense in this that I may be overlooking, if there are specialized companies or proffessionals that may make things easier, or if it's even possible to get loans in a foreign country where I never laid my feet. I haven't found anything about this specific subject online and don't even know how to research it. If you have any information or links, I thank you.
More...

You are referring to "carry trade" and it would not be advisable ( in my opinion) to invest it in the treasury bonds of a country which may go bankrupt IE Portugal.
 
dealmaker said:
You are referring to "carry trade" and it would not be advisable ( in my opinion) to invest it in the treasury bonds of a country which may go bankrupt IE Portugal.
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whatever, It's been around for ever. Borrow at a lower rate and loan (or invest) at a higher rate. Piece of cake as long as the one you are loaning to doesn't go broke. Some call it the carry trade, others call it banking.
 
loyek590 said:
whatever, It's been around for ever. Borrow at a lower rate and loan (or invest) at a higher rate. Piece of cake as long as the one you are loaning to doesn't go broke. Some call it the carry trade, others call it banking.
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PS I did not say don't engage in carry trade, just don't do it with Portuguese bonds.
 
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