Everbank Cd Yields All Over The Map

[Yangpuss]

Everbank foreign currency CD yields vary a lot. For instance, the Hong Kong Dollar, Swiss Franc and Yen CDs all offer 0% interest.

The Mexican Peso offers a whopping 6.4% and the SA Rand 6.14%. NZ dollar is 5.35%.

In between are the Pound, 3.55% and the Aussie dollar, 3.8%.

Euro offers only 0.85%,

All these yields are for a 3 month CD.

The Chinese yuan account, which isn't a CD, offers 0% interest.

Can anyone explain to me why the yields differ so much? If I buy the Peso or the Rand, or the NZ dollar, is the yield higher because there is more risk involved in those currencies? Are they expected to go down, and that is why they have to offer more interest? Similarly, are the ones with very low interest low because they are expected to go up in value?

I am a newbie at finance! Me no understand!

Edited February 20, 2005 by Yangpuss

[MattFS218]

Everbank foreign currency CD yields vary a lot. For instance, the Hong Kong Dollar, Swiss Franc and Yen CDs all offer 0% interest.

The Mexican Peso offers a whopping 6.4% and the SA Rand 6.14%. NZ dollar is 5.35%.

In between are the Pound, 3.55% and the Aussie dollar, 3.8%.

Euro offers only 0.85%,

All these yields are for a 3 month CD.

The Chinese yuan account, which isn't a CD, offers 0% interest.

Can anyone explain to me why the yields differ so much? If I buy the Peso or the Rand, or the NZ dollar, is the yield higher because there is more risk involved in those currencies? Are they expected to go down, and that is why they have to offer more interest? Similarly, are the ones with very low interest low because they are expected to go up in value?

I am a newbie at finance!    Me no understand! 

<{POST_SNAPBACK}>

Different countries have different policies for their interest rates. It is a way for governments to control their economies and to prevent inflation/deflation pressures. The US base rate is determined by the US Federal Reserve Bank (or the Feds). The US economy is currently expanding so the Fed is slowing increasing interest rates to prevent an overblow economy.

The Rand may offer a higher yield, but it may lose value in US Dollar Terms if the rand deperciates against the dollar over the term of the CD.

[Yangpuss]

Thank you , Matt. So you are saying that yes, the rand may lose value...but that isn't my question. My question is...is the rand, and other currencies that offer high interest rates, MORE LIKELY to lose value? And are those that offer 0% rates LESS LIKELY to lose value? If that is not the case, why don't most investors just jump at the currencies with the higher yields?

[LaoPo]

Thank you , Matt. So you are saying that yes, the rand may lose value...but that isn't my question. My question is...is the rand, and other currencies that offer high interest rates, MORE LIKELY to lose value? And are those that offer 0% rates LESS LIKELY to lose value? If that is not the case, why don't most investors just jump at the currencies with the higher yields?

<{POST_SNAPBACK}>

RISKS...it all has to do with risks. You gave the answers yourself.

LaoPo

Edited February 21, 2005 by LaoPo

[MattFS218]

Thank you , Matt. So you are saying that yes, the rand may lose value...but that isn't my question. My question is...is the rand, and other currencies that offer high interest rates, MORE LIKELY to lose value? And are those that offer 0% rates LESS LIKELY to lose value? If that is not the case, why don't most investors just jump at the currencies with the higher yields?

<{POST_SNAPBACK}>

Interest rates are not set by the market (they are set by central governments), but (most) major currency exchange rates are set by the market. I would not consider the correlation to be definite, but a correlation might exist....if I knew the answer to your question, I'd wouldn't be here typing this message to you...i'd be rich.

matt