Interest rate differentials, as the name suggests, are 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 countries, which in turn causes regional interest rate differences.

This kind of difference is nothing new for professional financial practitioners, and there are many professional financial practitioners who carry out cross-regional arbitrage investment on the premise of risk and return, considering the relevant factors of exchange rate.

It is not difficult for those who will know, but it will not be for those who are difficult.

So how do you convert a currency with a low interest rate for a currency with a high interest rate to earn this interest rate differential?

Let's say the interest rate on a one-year sterling deposit is 5.5% and the interest rate on a US dollar deposit is 5% for the same period, and the interest rate difference between them is 0.5%. Assuming that the current exchange rate between them is 1 pound = 1.5 US dollars, then if the exchange rate fluctuations are not considered, the sum of principal and interest of a one-year deposit of 1500 US dollars is 1575 US dollars [1500 US dollars × (1+5%)], which is converted into 1050 British pounds sterling (1575 US dollars ÷ 1.5 US dollars).

However, if the $1,500 is converted into £1,000 first, the sum of principal and interest for the previous year will be £1,055 [£1,000× (1+5.5%)). Put simply, for the same amount of deposits, the interest rate spread is 0.5% more in pounds than in dollars.

Of course, this can only be achieved if the exchange rate remains the same.

In other words, if the exchange rate between them fluctuates by 1 pound = 1.48 US dollars at the end of the one-year deposit period, the sum of the principal and interest of 1055 pounds sterling deposited in British pounds is converted into 1561.4 US dollars (1055 pounds × 1.48 US dollars), which is 13.6 US dollars (1575 US dollars - 1561.4 US dollars) less than that deposited in US dollars, because the exchange rate difference between the British pound and the US dollar is 1.33% in one year [(1.50 US dollars - 1.48 US dollars) / $1.50].

Therefore, when this exchange rate difference is greater than the interest rate spread, the arbitrage trade is more than worth the loss.

Then, the problem arises.

The Finnish mark implements a peg exchange rate system, mainly pegging the EC to the EC, but because the weight of the Eju is based on the Deutsche mark, it is equivalent to the Finnish mark pegging to the Deutsche mark.

What is the exchange rate peg?

Under the pegged exchange rate system, a country's currency maintains a relatively stable comparison with one other currency or basket of currencies, that is, the currency of choice is pegged. The national currency fluctuates with the fluctuation of the selected currency, but the comparison between them is relatively fixed or only floats in a small range, generally no more than 1%, if the market exchange rate fluctuates more than this range, the central bank will intervene in the market to stabilize the market exchange rate and maintain the effectiveness of the peg exchange rate system.

In the eyes of professional financial practitioners, arbitrage spread investment is the most common trading investment, just like eating and drinking, there is nothing strange. But for people outside of professional financial practitioners, many people simply don't understand what interest rate differentials are, or how they affect individuals.

Like a lumberjack, he can feel the rings of a tree with his hands, but he doesn't know how to make a generator. A generator mechanic who can build a generator will not know how to save money by mining minerals.

But what if someone leaks the secrets of the industry or the way to make money?

London, United Kingdom.

Jari Litmanen, wearing a white hat and a chef's uniform, leaned against the kitchen with a newspaper and watched.

The Sun, the UK's best-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 intellectuals. The intellectuals criticized the "Sun" for its crude and unprofessional methods of reporting the news, and often used sensationalism to stimulate sales, and the target readers were basically people with limited academic qualifications and knowledge, and they met people's low-level needs.

Critics of The Sun are mainly aimed at the large amount of vulgar and sensational content and unprofessional writing methods in the newspaper, as well as the preference for Murdoch's political stance, and have repeatedly joked about heads of state and major events in Britain and abroad.

For example, at the end of the Falkland War, the Argentine warship General Belgrano was sunk, and the newspaper carried the headline "Gotcha!".

Nonetheless, some surveys have found that the number of readers of The Sun is twice as high as that of The Times, the knowledge-based and high-end newspaper of the same group, among the ABC1 advanced readership.

Cause?

All right...... Since 1970, the "Sun" has launched the famous "Three Editions Girl", and the girl on the third page was originally just a photo of a famous model, and later the form changed to a daily appearance**.

The figure is delicate, which makes people think about it, and the beautiful body and curvy figure will always make people never get tired of looking at it.

Of course, such a newspaper is only secretly read by the intellectuals and not openly by the public, and only low-level people like Jari Litmanen will openly hold the newspaper and read it in the kitchen.

Jari Litmanen is a small man, of course, he doesn't think so himself.

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

Luckily for Jari Litmanen, who soon opened his new bakery, made a net profit of nearly £2,000 a month, and was a family man, he would send money back to his home in Finland on time despite occasionally reading pornographic magazines or taking care of runaway women on the street.

There, there is his wife and children living.

With the newspaper in hand, Jari Litmanen lit a cigarette and, in the smoke, flipped through the front page of the newspaper.

Jari Litmanen has a habit of always putting good things in the back, so he bought The Sun to see the Three O'Clock Girl, but he would look at other news first.

Headlines.

A photo of a Chinese man is prominently listed.

Jari Litmanen was interested, and it was interesting that Chinese Americans were as rare as giant pandas in Europe, and that it was interesting that Chinese Americans were suddenly on the front page of The Sun.

Be wary of the devaluation crisis that exists in the Finnish mark.

Author: Shen Jiannan.

"The economy is a way of exchanging wealth, and hundreds of years of economic markets have shown that there are always ups and downs in the operation of the economy, which we call the economic cycle.

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

“......”

"The Bank of Finland has decided that it will cut its benchmark interest rate by 0.5 percent. ”

"Not long ago, the Bundesbank raised its benchmark interest rate, and the central bank's implementation rate reached 5.6 percent, and the commercial bank interest rate even reached 6.3 percent, which is very attractive for Finnish capital as a store of value.

“......”

"Capital is profit-seeking by nature, and Finland's interest rate of 1.5 percent cannot even outpace inflation, so it has lost its attractiveness to capital, and if you take the Finnish mark to a German bank to deposit, then you will get more benefits. ”

“......”

"We don't want to see Finland fall into a currency crisis because of the economic crisis. ”

“......”

"But we have to remind the Bank of Finland that it needs to see reality now to avoid a bigger crisis. ”

“......”

The big headline made Jari Litmanen's laid-back attitude instantly freeze, he is Finnish, and all the money he earns is sent home in Finland.

If you want to depreciate your own money, even if you don't depreciate, you can get almost four percent more by depositing money from Finland in a German bank.

Jari Litmanen almost didn't slap himself in the face, he never thought that he would lose a lot of interest in Finland in vain.

Without hesitation, Jari Litmanen ignored the three o'clock girl, dropped the cigarette butt and picked up the phone and dialed back to his home in Finland.

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

"Minnie, it's me. Did you sleep?"

"Oh, oh...... Not yet. What's wrong. ”

"Tomorrow you take our deposit to the bank and exchange it for Deutsche Mark, and we deposit the money in the bank in Germany, so that we can earn an extra four points of interest per year......"

“......”