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Contenty The Basics
y Currency
y Carry Tradey Carry Trade & Exchange Rates
y Egypt Carry Trade
y Conclusion
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Currencyy W hich quote is correct?
USD/GBP 1.51258
GBP/USD 1. 51258
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Currency
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Currencyy Currency Pairs
Pair Rate
EUR/USD 1.37917
GBP/USD 1.61096
USD/CAD 0.98364
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Currencyy If the GBP/USD exchange rate goes f rom
1.37917to
1.38017
W hich currency has appreciated?
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Currency
GBP has appreciated !
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CurrencySymbol Countr y Currenc y Nickname
USD United States Dollar Buck
EUR Euro zone Euro Fiber
JPY Japan Yen Yen
GBP Great Britain Pound Cable
CHF Switzerland Franc Swissy
CAD CanadaDollar Loonie AUD Australia Dollar Aussie
NZD New Zealand Dollar Kiwi
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Carry Tradey W hat is a Carry Trade?
y A Carry Trade involves borrowing or selling a f inancial
instrument with
a low interest rate, th
en using it topurchase a f inancial instrument with a higher interestrate.
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Carry Tradey The Yen Carry Trade
y Borrowing in Yen, investing in other countries
y W hen Yen down, world stocks up and vice versa
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Carry Trade & Exchange Ratesy Exchange Rate is a big part of the Carry Trade strategy
y W hich country to borrow f rom? One with
appreciating, stable or depreciating exchange rate?
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Carry Trade & Exchange Rates
The one with depreciating exchange rate!
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Carry Trade & Exchange Ratesy W hich country to invest in? One with appreciating,
stable or depreciating exchange rate?
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Carry Trade & Exchange Rates
The one with appreciating exchange rate!
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Carry Tradey W hich currency other than the Yen currently has low-
yielding interest rates?
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Carry Trade
The Doll ar
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Egypt Carry Tradey Borrowed dollar at low-rates to buy higher yielding
debt in the emerging markets
y
Egypts central banks benchmark interest rate 9.75percent
y Protests against Hosni Mubarak put Carry Trade into jeopardy
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Egypt Carry Tradey Foreign investors own about 20 percent of Egypts
short-termT-bills
y
Holdings in the past two years have soared f romaround E£5bn to over E£60bn ($10bn)
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Egypt Carry Tradey The sharpest expression of the negative turn in
sentiment is the cost of insuring against a sovereign
debt def ault.
y Spreads on f ive-year credit def ault swaps, thebenchmark instrument f or credit insurance in Egypt,have leapt nearly 29 per cent since Tunisias president
was overth
rown on January 14 (graph
on next slide).They now stand at 347 basis points, higher than Iraqs.
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Egypt Carry Tradey W eakening of the Egyptian pound could set off a
downward spiral
y
Even though Egyptian interest rates, the currency hasbeen f amously stable to the dollar, thanks to theauthorities
y Rising core inf lation
y Locals started selling as well
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Week Newsy KSE 11,223.52 to 12,000.03y NCCPL set to launch 3 leverage products: Margin Trading
System, Margin Financing System and Securities Lending andBorrowing
y USD/PKR Interbank market f rom 85.67, last Saturday to85.53
y W orld Stocks mostly downy ECB rate rise hint rocks marketsy Receivables swell to Rs164.65bn: PSO may def ault on f uel
supplies as crisis deepensy All set to resume 2 pc monthly raise in power tariff y Bringing Green Revolution: Interest-f ree loans f or f armers
demandedy Commodity prices up
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Week Newsy Minorities Minister assassinated on W ednesday y Pakistan Automated Customs Computerized System (PaCCS)
chapter, a bane between Agility and FBR, closed, Agility to movetowards Arbitration
y IMF to continue talks, even if oil price hike decision is withdrawn
y 50pc hike in POL prices withdrawny ADB agrees to provide $700m sof t loan of 0.5% markup and
maturity of 32 years
y Egypts PM resignedy The Libyan Situation
y Britain f roze Gaddaf is assetsy Gaddaf i supporters attack protestors