What could be the risk?.. ?

Question

i want to change my dollar's savings to mexican pesos and put them in a mexican bank they are paying about 6% a year and no more than 24hours term everday if need to use your money you do....thanks

Answer 1

Difference in interest rates exist to compensate for the weakness of a currency. If the pesos is paying 6% and the US dollar 4% for a bond of the same maturity date, then that is so because the probability that the pesos goes down against the dollar is larger than it would go up.

But these trades do happen a lot: they are called carry trades. Very popular at the moment is the Yen-Turkish Pound carry trade. Borrow a lot of Yen (rate 0.25%) convert to Turkish Pounds and lend it out (20%). Risky but very profitable as long as it works.

Answer 2

You're exposed to changes in the value of the peso.

Also, a higher interest rate usually signifies an economy troubled by inflation so the risks are higher.

The dollar is showing signs of recuperation so you may see it strengthening in relation to the peso.

Answer 3

If the peso goes down.... you could lose big!!!!!!! (and it looks like the USD is getting stronger)..................................

Currency is the last place the amatuer investor should be in.