CARRY TRADE AND REGIONS HEINER FLASSBECK Director Division on Globalization and Development Strategies 1 1
17 1 7 EVOLUTION OF PRICES IN SELECTED MARKETS AND COUNTRIES, OCTOBER JUNE 1 (Index numbers, 1 OCTOBER 1 = ) Equity markets Commodity markets 17 1 7 1/1/ 1//9 1//9 1/1/9 1//1 1//1 Budapest Stock Exch Index (Hungary) Jakarta Composite Index (Indonesia) FTSE/JSE Africa All Shr (South Africa) Mexico Bolsa Index 1/1/ 1//9 1//9 1/1/9 1//1 1//1 S&P GSCI Cotton Official Close Index S&P GSCI Brent Crude Official Close Index S&P GSCI Copper Official Close Index 17 National bond marketsa 17 Currency markets 1 1 7 7 1/1/ 1//9 1//9 1/1/9 1//1 1//1 1/1/ 1//9 1//9 1/1/9 1//1 1//1 Japan United Kingdom New Zealand United States Australian dollar to Japanese yen New Zealand dollar to Japanese yen Brazilian real to Japanese yen
DAILY MOVEMENTS OF PRICES AND RETURNS BETWEEN 11/ AND 11/9 IN RELATION TO THE EXCHANGE RATE OF THE BRAZILIAN REAL TO THE JAPANESE YEN S&P GSCI Non-energy Official Close Index 1 19 1 17 R =.93 S&P Composite Index 11 11 1 1 9 9 7 R =. 1.1..... Brazilian real to Japanese yen. 7.1..... Brazilian real to Japanese yen 7 United States Yield on 1-year Bond 3. 3. 3. 3. 3..... R =.797 S&P GSCI Brent Crude Official Close Index 3 R =.71..1..... Brazilian real to Japanese yen 3.1..... Brazilian real to Japanese yen
Correlation between day-to-day price movements of currencies of selected countries (in relation to Japanese Yen) and selected equity prices indices, commodity price indices and CDS spreads, January - January 1 Russian Ruble.39.37.3.33.31.9.7..3 R =.1 Brazilian Real.....1.1 R =.9 New Turkish Lira.....1.1.1.1 R =. Australian Dollar...1.1.1 R =..1 3 3 3 73 3.1 199 99 399 99 99.1 3 3.1 197 97 397 97 97 Swiss Market Index S&P GSCI CoppOfficial Close Index Sweden Yield on a 1-year bond Hungary CDS USD Spread Y
YEN-CARRY TRADE ON THE ICELANDIC KRONA, US DOLLAR AND BRAZILIAN REAL, -7 7 1 - - - - -1 Krona 1 3 7 9 111 1 3 7 9 111 1 3 1 - - - - -1 Dollar 1 3 7 9 111 1 3 7 9 111 1 3 7 7 1 - - - - -1 Real 1 3 7 9 111 1 3 7 9 111 1 3 7 Note: A positive change in the exchange rate means an appreciation of the corresponding currency vis-à-vis the yen.
YEN-CARRY TRADE ON THE ICELANDIC KRONA, US DOLLAR AND TURKEY LIRA, -7 7 1 - - - - -1 Krona 1 3 7 9 111 1 3 7 9 111 1 3 1 - - - - -1 Dollar 1 3 7 9 111 1 3 7 9 111 1 3 7 7 1 - - - - -1 Turkey New Lira 1 3 7 9 111 1 3 7 9 111 1 3 7 1 - - - - -1 Hungarian Forint 1 3 7 9 111 1 3 7 9 111 1 3 7
CARRY TRADE OPPORTUNITIES OF THE ICELANDIC KRONA VIS-À-VIS THE DOLLAR, FEBRUARY 1 1 - - - - -1 1 7 1 1 7 1 1 7 1 1 7 1 1 7 1 1 7 9 1 7
CARRY TRADE OPPORTUNITIES OF SELECTED CURRENCIES VIS-À-VIS THE DOLLAR, FEBRUARY 1 1 - - - - -1 Icelandic krona 1 - - - - -1 Hungarian forint 1 7 1 1 7 1 1 7 1 1 7 1 1 7 1 1 1 7 1 1 7 1 1 7 1 1 7 1 1 7 1 1 7 9 1 7 9 1 1 - Brazilian real 3 1-1 Bulgarian lev - - - -1 - -3 - - 1 7 1 1 7 1 1 7 1 1 7 1 1 7 1 1 1 7 1 1 7 1 1 7 1 1 7 1 1 7 1 1 7 9 1 7 9 1 U n c o ve re d in te re s t re tu rn N o m in a l e x c h a n g e -ra te c h a n g e In te re s t ra te d iffe re n tia l
UNCOVERED INTEREST RETURNS, EXCHANGE-RATE CHANGES, INFLATION AND INTEREST RATE DIFFERENTIALS, 199-1 1 ICELAND 1 13 1 - - - 11 9 Index numbers, = 1 - -1-7 -1-1 199 199 1 7 1-199 199 1 7 1 Real exchange-rate change Inflation rate differential Real exchange-rate trend (right scale) 9
UNCOVERED INTEREST RETURNS, EXCHANGE-RATE CHANGES, INFLATION AND INTEREST RATE DIFFERENTIALS, 199-1 1 BRAZIL 1 1 1 - - - 1 13 11 9 Index numbers, = 1 - -1-7 -1-1 199 199 1 7 1-199 199 1 7 1 Real exchange-rate change Inflation rate differential Real exchange rate trend (right scale) 1
UNCOVERED INTEREST RETURNS, EXCHANGE-RATE CHANGES, INFLATION AND INTEREST RATE DIFFERENTIALS, 199-1 1 TURKEY 1 - - - - 1 1 Index numbers, = 1 1 - -1-1 -1 199 199 1 7 1-199 199 1 7 1 Real exchange-rate change Inflation rate differential Real exchange rate trend (right scale) 11
UNCOVERED INTEREST RETURNS, EXCHANGE-RATE CHANGES, INFLATION AND INTEREST RATE DIFFERENTIALS, 199-1 1 CHINA 1 13 1 - - - 11 9 Index numbers, = 1 - -1-7 -1-1 199 199 1 7 1 Real exchange-rate change Inflation rate differential Real exchange-rate trend (right scale) - 199 199 1 7 1
UNCOVERED INTEREST RETURNS, EXCHANGE-RATE CHANGES, INFLATION AND INTEREST RATE DIFFERENTIALS, 199- EASTERN EUROPE 1 Eastern-European Countries 1 Eastern European Countries 1 1 1 - - - - - -1 199M3 1997M11 1999M7 1M3 M11 M7 M3-1 199M3 1997M11 1999M7 1M3 M11 M7 M3 Real exchange-rate change Inflation rate differential Real exchange-rate trend (right scale) Speculation opportunities, appreciation trend and volatility persist despite the reduction in interest rates. 13
UNCOVERED INTEREST RETURNS, EXCHANGE-RATE CHANGES, INFLATION AND INTEREST RATE DIFFERENTIALS, 199- ASIA 1 Asia 1 1 Asia 13 11 - - - - 9 7 - -1 199M3 1997M11 1999M7 1M3 M11 M7 M3 Real exchange-rate change Inflation rate differential Real exchange-rate trend (right scale) -1 199M3 1997M11 1999M7 1M3 M11 M7 M3 Little speculation opportunities, moderate average appreciation and volatility. 1