Rebirth of the Financial Overlord

The spread, as the name suggests, is the difference in interest rates.

In economic regulation, interest rates are often adjusted according to the economic level and inflation expectations of the currency-issuing country, resulting in regional interest rate differences.

And this kind of difference is nothing new to professional financial practitioners. Many professional financial practitioners conduct cross-regional arbitrage investment based on the premise of risks and benefits, considering the relevant factors of exchange rates.

Those who meet are not difficult, those who are difficult will not.

So how to convert a currency with a low interest rate into a currency with a high interest rate, so as to earn this interest rate difference?

Assuming that the one-year deposit interest rate in British pounds is 5.5%, and the interest rate on US dollar deposits in the same period is 5%, the interest rate difference between them is 0.5%. Assuming that the current exchange rate between them is 1 British pound = 1.5 US dollars, then if the exchange rate fluctuation factor is not considered, the sum of the principal and interest of a 1,500 US dollar one-year deposit is 1,575 US dollars [1,500 US dollars × (1+5%)] , converted into British pounds is 1,050 pounds ($1,575 ÷ $1.5).

However, if the US$1,500 is converted into £1,000 first, the sum of the principal and interest of the previous year will be £1,055 [£1,000 × (1+5.5%)]. In short, for the same amount of deposits, there is a 0.5% interest rate difference between depositing GBP and USD.

Of course, this can only be achieved when the exchange rate remains unchanged.

In other words, if the exchange rate between them fluctuates at £1=US$1.48 by the time the one-year deposit expires, the sum of the principal and interest of £1,055 in sterling deposits is converted into US$1,561.4 (£1,055×US$1.48), On the contrary, it is 13.6 US dollars less than depositing in US dollars (1575 US dollars - 1561.4 US dollars). This is because the exchange rate difference between the pound and the US dollar in one year is 1.33% [(1.50 US dollars - 1.48 US dollars) / 1.50 US dollars].

Therefore, when the exchange rate difference is greater than the interest rate difference, the arbitrage trade is not worth the loss.

Then, the problem arises.

The Finnish mark implements a pegged exchange rate system, which is mainly pegged to the European Community's ecu, but since the proportion of the ecu is centered on the German mark, it is equivalent to the Finnish mark pegged to the German mark.

What is a pegged exchange rate system?

In the pegged exchange rate system, a country's currency maintains a relatively stable exchange rate with other currencies or a basket of currencies, that is, the selected currency is pegged. The domestic currency fluctuates with the fluctuation of the selected currency, but the exchange rate between each other is relatively fixed or only fluctuates within a small range, generally no more than 1%. If the market exchange rate fluctuates beyond this range, the central bank will intervene in the market. Stabilize the market exchange rate and maintain the effectiveness of the pegged exchange rate system.

In the eyes of professional financial practitioners, arbitrage trading investment is the most common trading investment, just like eating and drinking water, there is nothing strange about it. But for people other than professional financial practitioners, many people don't understand what interest rate spread is at all, or in other words, they don't know what impact interest rate spread has on individuals.

Just like a lumberjack, he can feel the growth rings of a tree with his hands, but he doesn't know how to make a generator. And a mechanic who manufactures generators can manufacture generators, but he doesn't know how to save costs in mining.

But what if someone spilled the secrets of the trade or how to make money?

London, England.

Jari Litmanen, wearing a white hat and chef's uniform, is leaning against the kitchen with a newspaper and reading.

The Sun, the UK's largest-selling newspaper, sells nearly three million copies a day.

However, although the sales and popularity of The Sun are very high, many people have a bad impression of The Sun, especially the intellectual circles. Intellectual circles criticized The Sun for its rough, unprofessional, and unbiased way of reporting news, often using sensationalism to stimulate sales.

Critics of the Sun mainly point to the large amount of vulgar, sensational content and unprofessional writing techniques in the newspaper, as well as the political stance that favors Murdoch's preferences. .

For example, at the end of the Falklands War, when the Argentine warship General Belgrano was sunk, the newspaper wrote Gotcha! as the headline.

Despite this, there are also surveys that among the ABC1 class of senior readers, the readers of The Sun are twice as high as the knowledge-based and high-end newspaper The Times of the same group.

reason?

Well, since 1970, The Sun launched the famous Three Pages of Girls. The third page of girls was originally just a photo of a famous model, and later it was changed to a daily show.

The figure is so slender that it is easy to read, and the beautiful body and curvaceous figure will always make people never get tired of it.

Of course, the intelligentsia will only read such newspapers secretly and will not openly show it to the public. Only low-level people like Jari Litmanen will openly read newspapers in the kitchen.

Jari Litmanen is a little guy, of course, he doesn't think so himself.

Last year, he was still a bakery owner in Finland, but with the weakening of the Finnish economy and the small population of Finland, Jari Litmanen had to move the bakery to London to seek better development.

Jari Litmanen is very lucky. The new bakery has been on the right track not long after it opened. It can make a net profit of nearly 2,000 pounds a month. He is also a man who takes care of his family. Go take care of the stray women in the street, but still send the money back home in Finland on time.

There, his wife lives with their children.

Holding the newspaper in his hand, Jari Litmanen lit a cigarette. Amidst the smoke, he first flipped through the front page of the newspaper.

Jari Litmanen has a habit of always putting good food behind, so although his purpose of buying The Sun is to read the three o'clock girls, he still reads other news first.

Front page, headlines.

A photo of a Chinese man is impressively listed.

Jari Litmanen became interested. In the whole of Europe, Chinese are as rare as giant pandas. Suddenly, a Chinese appeared on the front page of The Sun, which made him feel very interesting.

Be wary of the depreciation crisis of the Finnish mark.

Author: Shen Jiannan.

The economy is a way of exchanging wealth. Hundreds of years of economic market show that there will always be ups and downs in the operation of the economy, which we call economic cycles.

Statistics from the Finnish Labor Department: In the second quarter, the national unemployment rate increased by five percent to 15 percent.

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The Bank of Finland has decided to cut the benchmark interest rate by 0.5 percent.

Not long ago, the German central bank raised the benchmark interest rate, the central bank's executive interest rate reached 5.6%, and the commercial bank interest rate even reached 6.3, which is very attractive to Finland's value-preserving capital.

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The nature of capital is to pursue profits. Finland's 1.5% interest rate can't even beat inflation, which has lost its attractiveness for capital. If you take the Finnish mark to deposit in a German bank, you will get more income.

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We do not want to see Finland plunged into a currency crisis because of an economic crisis.

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But we have to remind the Bank of Finland that it is time to see reality in order to avoid a bigger crisis.

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The big headline made Jari Litmanen's lazy attitude stop for a moment. He is a Finn, and all the money he earns is sent home and stored in Finland.

If your own money depreciates, even if it does not depreciate, you can get nearly 4% more income by depositing money from Finland in a German bank.

As if suddenly enlightened, Jari Litmanen almost didn't slap himself in the face. Why didn't he realize that he lost a lot of interest in Finland for nothing in one year.

Without any hesitation, Jari Litmanen put down his cigarette butt and picked up the phone to call home in Finland, ignoring the three o'clock girl.

Soon, the phone was connected, and his wife's familiar voice came from the phone.

Minnie, it's me. Are you asleep?

Oh, oh...not yet. What's up.

Tomorrow you take our savings to the bank and exchange them for German marks. We deposit the money in a German bank, so that we can earn four more points of interest every year...

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