For example, investors buy dollars and sell yen; Because the interest rate of the US dollar is higher than that of the Japanese yen, after a period of time, you get the interest difference because you hold a high-interest currency (in this case, the US dollar), which is a carry.
For example, if you buy USD 65,438+million today and sell JPY 1 1.7 million, if the exchange rate between USD and JPY is 1 17, you can buy it back one year later. If the exchange rate remains unchanged, you will make a profit:
Assuming that the US dollar interest rate is 3% and the Japanese yen interest rate is 0. 1%, the interest income 10X3%=0.3 million US dollars, and the interest paid in Japanese yen is11700x0.1%=1.
So you can earn 339,300 yen (US$ 2,900) a year by holding high-interest currency dollars.
If the dollar appreciates, you will get interest and exchange rate. Even if the dollar depreciates, as long as the depreciation does not exceed the interest difference, you will still make a profit (of course, it will be less than when the exchange rate remains unchanged).
So in this case, the dollar should be called an arbitrage currency!
The Influence of Arbitrage on the International Financial Market
1. Arbitrage trading is the product of financial globalization and world economic expansion and liberalization. There are many high-risk sources in the international financial system. Financial market: There are bubbles in stock market, foreign exchange market, bond market, derivative market and real estate market, which are complex and significant. The danger of world economic recession led by the United States, the flood of hot money in the world, the development of financial innovation and the evolution of international politics and economy. Typical examples are the Japanese yen cross plate and the Swiss franc cross plate of the United States and Japan. Japan is a typical international carry trade, and so are major financial institutions in Europe and America. Carry trade accounts for nearly half of the daily average turnover of $3 trillion in the foreign exchange market, which makes the spread business of banks active and related industries develop.
Low-interest currencies such as Japanese yen and Swiss franc provide carry trade and financial arbitrage between capital and unfair capital (non-owned capital, financing capital with different difficulties and different channels, government acquiescence capital, etc.). With the deep liquidity and endless supply capacity of the yen, the government deliberately kept the yen interest rate at a low level for a long time, and the yen carry trade prevailed.
In the long run, there is a strong correlation between arbitrage trading trend and stock market trend. But the short-term correlation is not significant. But there are different time and space differences. Both arbitrage traders and stock market investors benefit from this interaction. Low market volatility enhances the financial transaction cycle. The global credit crisis and political and economic turmoil will change the operation of carry trade.
On February 27th, 2007, the liquidation problem of subprime mortgage in yen carry trade worsened, which led to the decline of American housing market. At that time, the market was worried about the economic situation in the United States and the overheating of the global stock market. When the interest rate of Japanese yen rises or the exchange rate of Japanese yen rises, Japanese yen arbitrage traders will sell other assets they hold and buy back Japanese yen with the proceeds from the sale to repay the previously borrowed Japanese yen loans. The spread and exchange rate level will affect the cost and income of arbitrage trading. Looking deeper: the risk of overheated investment, rising inflationary pressure, sharp performance of asset bubbles, and increased international financial risks. The short position of the yen is only a part, but it has an exemplary role. The yield of international stock market and real estate market is higher than the spread, but it is complicated after introducing financial innovation tools. Governments all over the world tend to tighten monetary policy, but some big countries have no intention to do so, so the interest rate decision complicates the advantages and disadvantages of arbitrage trading.
There is an extremely important thing in the book, and overnight communication plays a key role. For example, the interest rates of high-interest currencies are US dollars (5.25%), Australian dollars (6.25%), New Zealand dollars (7.50%) and low-interest currencies are Japanese yen (0.5%).
Assuming that the interest rate of USD is 5.25% and the interest rate of JPY is 0.5%, we will trade USD 65,438+million! 65438+ million dollars equals 12 15000 yen, and the exchange rate is 12 1.50. The interest income of USD is100000 x 5.25% = USD 5250.
Pay yen interest12150000 0.5% = 60750 yen, 5250 USD = 5250x121.5 = 637875 yen,
Interest difference =637875-60750=577 125 yuan. When 57,765,438+025/65,438+0,265,438+0.50 = 4,750 USD, you can get risk-free income, so you can get 57,765,438+025 yen (4,765,438+025 yen) if you hold high-interest currency USD for one year. If the dollar appreciates, in addition to interest, the exchange rate will also profit; In the past, the exchange rate was 1: 1 19, but now the dollar has appreciated to 122. Even if the dollar depreciates, as long as the depreciation does not exceed the interest difference, you will still make a profit (of course, it will be less than when the exchange rate remains unchanged).
So the dollar should be called an arbitrage currency. Without overnight spreads, arbitrage trading is not easy to prevail. Overnight spreads combine different financial forms, especially derivative models, resulting in highly competitive profit derivative ability. The bloodthirsty nature of capital, risk preference and financial development make arbitrage a long-term problem.
3. Compound interest is the subversive financial core of 2 1 century, and arbitrage is the typical representative of compound interest.
In practice, the trading profit of margin is huge. There are options, forwards, swaps, options, foreign exchange futures and other forms. For example, if you buy more dollars/yen, the purchase price is 12 1.50.
For margin trading, the margin is paid at 2%, and the amount of margin is $654.38 million. The transaction amount is calculated at $5 million (50 times leverage).
After one year, assuming that the exchange rate has not changed, the interest difference is USD 5 million × (5.25%-0.5%) = USD 237,500. Some people say that almost everyone in Japan makes foreign exchange deposits. The problem in Japan is that the yen is a free currency, and a large number of yen can be exchanged for various currencies and assets around the world. As a result, virtual financial assets all over the world have been bought. Hedge funds cover speculative activities with arbitrage transactions, and the yen arbitrage transactions conducted through offshore centers are estimated to reach $654.38+000 billion, which is more impressive than the free financial capital in other currencies and non-foreign exchange markets.
4. Because of its influence on the country, the world, economy and finance, arbitrage trading has become a new source of market fluctuation that affects and reshapes the world economy. Finance has become another force in the world economy. For example, the United States has become a major force in the world in the tertiary industry, finance and overseas economy. The spread, the sustainability of carry trade and the lifting of trading positions have all had a great impact on the macro-economy of many countries, including overheated investment, inflation, real estate bubble and risks in capital markets and international financial markets. Because the stock market, like the carry trade, is driven by excess liquidity. Because excess liquidity is a global problem, China and Japan may be more serious. American stock market is the main battlefield of carry trade, and its ups and downs are affected by carry trade to some extent. For example, the interest rate difference between Japan and the United States makes high-yield risk-free arbitrage happen, and it will still exist unless it seriously affects the economies of the two countries. However, profits need to be realized, such as the liquidation of the 2.27 yen carry trade, factors: the repayment of yen funds, a large number of profit-taking, stock market factors, and the realization of the main funds led by hedge funds. 1992 European exchange rate mechanism crisis At that time, the exchange rates of Britain and Italy were strong, the balance of payments deteriorated, the competitiveness of some member States declined, and the US dollar depreciated against the mark during the same period, which weakened the competitiveness of EU countries. The fiscal deficit of member countries has not been effectively controlled, and the economic cycles of various countries are inconsistent, making it difficult to implement a unified monetary and fiscal policy. Thirdly, Denmark voted against the Maastricht Treaty.
However, France's ambiguous attitude is even more worrying about the determination of EU countries to maintain the exchange rate mechanism. Hedge funds control the operation of the foreign exchange market through leverage. Mutual funds, pensions, insurance companies and other institutional investors have also joined in. Measures and ideas: improve the financial system, improve the governance structure, improve the ability of market supervision, and balance the construction of financial system and financial opening. Regularly disclose information to improve transparency. Closely integrated with the changes in the international economy. Implement certain foreign exchange controls, tighten access conditions or increase the difficulty of transactions. , guard against and resist the impact of speculators and short-term capital.
5, China and foreign countries, as well as between different countries, banks and financial institutions have different channels to obtain funds and resources. This is also the motivation and principle of carry trade. The recent introduction of China (Shanghai Interbank Offered Rate) means that the opening of exchange rate and international supervision are inevitable, and the global economic union is inevitable. There must be monetary participation, especially the formulation and implementation of the global floating exchange rate of RMB. China has trillions of dollars in foreign exchange reserves. The financial capital reserves in Europe and America are dark and distributed among people or major financial institutions. At present, the total global financial capital is estimated to be between 654.38+0.3 million and 380 trillion US dollars. If China's foreign exchange reserves enter the global foreign exchange market, it is only a small part, because the total amount is more than 20 trillion US dollars. Americans are afraid that we won't go, so we can lead America. Once inside, if they are targeted by hedge funds, they will basically be swallowed up. China's foreign exchange management companies are extremely important to China's fate.
English is called carry trade, which must be recognized and often appears.
The yen carry trade is a simple mathematical problem: investors borrow yen with the current interest rate of only 0.5% and buy dollar assets with the interest rate of 5.25%, and theoretically enjoy a high profit of nearly 5%. Euro assets with an interest rate of 3.5% and pound assets with an interest rate of 5.25% are also investment targets of carry traders.
At present, the interest rate in Japan is too low, which makes the cost of funds for speculators attractive, which leads to the low-cost funds borrowed from Japan becoming so-called hot money and investing in various financial commodities around the world.
But the risk of arbitrage trading lies in exchange rate changes. Borrowed yen will eventually be repaid in yen. If the yen appreciates, the cost for arbitrage traders to buy back the yen to repay their debts will increase, thus eroding profits. If the yen appreciates more than the spread, the carry trade will lose money.