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Financemos, is there an arb here with Euro borrowing rate?
| narrow-minded angry casino scourge upon the earth | 12/07/19 |
| pearly abusive ape | 12/07/19 |
| narrow-minded angry casino scourge upon the earth | 12/07/19 |
| federal hominid hell | 12/07/19 |
| Translucent theater stage | 12/07/19 |
| Onyx Mood | 12/07/19 |
| plum party of the first part hall | 12/07/19 |
| thriller heaven | 12/07/19 |
| infuriating kitty | 12/07/19 |
Poast new message in this thread
Date: December 7th, 2019 3:03 AM Author: narrow-minded angry casino scourge upon the earth https://www.interactivebrokers.com/en/index.php?f=1595
I can borrow $500k USD at 2.55%, whereas I can borrow the equivalent in EUR at only 1.0%. Couldn't I borrow in EUR, convert to USD and buy stocks with it? Any reason I couldn't? I don't mind owing in EUR. |
Date: December 7th, 2019 3:06 AM Author: pearly abusive ape Germany is in recession and you think now is the time to denominate debt in Euros? LJL. (http://www.autoadmit.com/thread.php?thread_id=4396538&forum_id=2#39227696) |
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Date: December 7th, 2019 3:15 AM Author: narrow-minded angry casino scourge upon the earth Euros are going to appreciate vs USD? (http://www.autoadmit.com/thread.php?thread_id=4396538&forum_id=2#39227717) |
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Date: December 7th, 2019 3:16 AM Author: federal hominid hell ARE Reptile is a compliance monkey doesn’t know shit (http://www.autoadmit.com/thread.php?thread_id=4396538&forum_id=2#39227723) |
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Date: December 7th, 2019 7:11 AM Author: Translucent theater stage (http://www.autoadmit.com/thread.php?thread_id=4396538&forum_id=2#39227920) |
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Date: December 7th, 2019 7:09 AM Author: Onyx Mood Maybe. You have to take that risk. No hedging out of it to make this a real arb. (http://www.autoadmit.com/thread.php?thread_id=4396538&forum_id=2#39227918) |
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Date: December 7th, 2019 8:30 AM Author: plum party of the first part hall You would need to hedge for currency risk which is basically impossible at the retail level. (http://www.autoadmit.com/thread.php?thread_id=4396538&forum_id=2#39227978) |
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Date: December 7th, 2019 9:21 AM Author: thriller heaven I don't know if your link is just to post example of rates or that you'd borrow from IB. If the latter, I think (after skimming it) that those borrowing costs are for margin in the marker settling using that currency. So you need Yen to settle Japanese stock. Not that you can borrow Japanese Yen at that rate for an FX play.
To do what you want, you'd need to borrow the euro from a lender (with transaction costs) exchange it into USD (with transaction costs) buy your securities. The poaster above has it right that your currency should be treated like a separate asset class that you'll need to manage. |
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Date: December 7th, 2019 9:26 AM Author: infuriating kitty Yes you could do this, but let's say the EUR appreciates 2%, then you would lose all you gained through the interest rate arb.
IF you wanted to arb Euro USD interest rates what you would do is to just short EUR/USD futures and earn the roll down. For example, say spot EUR/USD is 1.12, but the March futures is 1.13. That 0.01 is due to the interest rate differential. You short the march futures and over time the 1.13 will converge to 1.12, and you earn that 0.01 (with leverage that can be a lot). the problem is that the underlying currency fluctuations are easily more than whatever you gain in the interest rate arb.
But if you think the Euro will depreciate, then you would earn the interest rate differential, PLUS the currency depreciation, so a double play. |