<p>I’m curious but why dont many americans invest in term deposits at some of the popular asian countries like India?</p>
<p>The rate there is currently 10% a year.</p>
<p>That’s quite a significant value, especially when you put in a substantial amount.</p>
<p>I found the rates quite absurd in the U.S, less then 1% at most banks.</p>
<p>It depends on the currency. An interest rate gap between deposits in two different currencies reflects the expected devaluation of the higher interest currency relative to the lower interest currency.</p>
<p>If it is a USD term deposit in an Asian country that offers 10%, well, you may or may not get your original deposit back.</p>
<p>You can actually open a USD bank account in Zimbabwe and get I think 12 or 15% annual interest. The political risk is kinda high.</p>
<p>I think India or China are pretty safe bets though.</p>
<p>To be more specific though mathematically, even the expected devaluation would still give you a higher rate of return than investing in north american banks. </p>
<p>10% vs 0.5% outweighs pretty much any expected change in currency value by a large margin</p>
<p>I should add that most asian countries dont even tax you on deposit income which makes it pretty lucrative imo. You cant even lose your initial deposit since they’re insured by the government. The only country where you could potentially lose everything are ones like Pakistan where no one would put money in anyway.</p>
<p>There’s also the expected surprise of the currency becoming stronger and thereby increasing your returns by even more.</p>
<p>By the way, the different in the rates isn’t because of the expected devaluation. It’s because of the central banks interest rates. The U.S Federal Reserve has been keeping interest rates at virtually zero to help rebuild the economy which is what’s causing the difference.</p>
<p>Thoughts people?</p>
<p>The Australian dollar has lost over 10% in the last year.</p>
<p>The Rupee has lost over 25% over the last two years.</p>
<p>There’s double-taxation on foreign investments.</p>
<p>Foreign banks don’t like the additional paperwork on reporting to the US Treasury for US Citizens and many won’t open new accounts for Americans.</p>
<p>You have to fill out the FBAR form disclosing your foreign assets, account numbers, addresses, etc. It’s due by June 30 every year and not filling it out can result in substantial penalties.</p>
<p>Australia doesn’t have deposit insurance and they have mandatory withholding taxes for foreigners.</p>
<p>You may have to make a trip to the foreign country to open an account.</p>
<p>Banks fail. They may have deposit insurance but you can lose any potential income and there are usually limits on deposit insurance. Also, deposit insurance is only as good as the deposit insurance fund.</p>
<p>The low interest rates in the US have resulted in a huge boom in the US stock market from March 2009. The one-year return on TNA is almost 100%. The return from March 2009 is about 800%. PSEC has a 7.7% gain over the last year and has a yield of 12.6% (paid monthly).</p>
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<p>No, it is just technical, based on futures contract expected exchange rate of the two currencies.</p>
<p>Sure you can try, sometimes the currency with the very high rate (15-18%) also goes up relative to the USD, this happened with the Romanian RON a few years ago.</p>
<p>One big reason (to answer your question) is lack of information. I wouldn’t know where to begin the process of placing funds on deposit at an Indian bank. I also am uncomfortable with the unknown credit risk, and I think you are vastly underestimating the foreign currency exchange risk. A quick glance shows an exchange rate of 53 rupees per dollar earlier this year vs the current exchange rate of 60, a 13% change.</p>
<p>[1997</a> Asian financial crisis - Wikipedia, the free encyclopedia](<a href=“http://en.wikipedia.org/wiki/1997_Asian_financial_crisis]1997”>1997 Asian financial crisis - Wikipedia)</p>
<p>To be fair the risk the rupee devaluation was quite unexpected. It’s been a bad month in general where it’s been the worst performing currency in asia.</p>
<p>Things have been pretty stable though apart from that in the past few years.</p>
<p>As for the Asian Financial Crisis, 1997 was quite a while back and it didn’t effect the most dominant countries. i.e India,China,Japan</p>
<p>P.S. I didnt really mention that it has to be invested in the local currency of the country. They typically offer USD/CAD/GBP deposits at significantly higher rates then the U.S aswell. It just depends if you’re willing to trust the local currency of choice and get the best rate.</p>
<p>There have been quite a few years in the last decade where the exchange rate remained stable and may have even improved. People would have made quite a lot in such situations.</p>
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<p>If you want low risk, including currency risk, then you stay in your own currency. Some are willing to trade risk for return.</p>
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<p>Yen has lost 19% to the US dollar in the last year.</p>
<p>Those that don’t learn the lessons of history are doomed to repeat them. We have regular bubbles in the US and it’s no surprise that bubbles develop in other countries too.</p>
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<p>Well, then you’re getting into trading. As I wrote, you could have made 800% in TNA going long in March 2009. There are many that absolutely have to have guarantee of principal - for retirement, college expenses, buying a house, etc. I do have foreign investments and have to deal with the headaches that I posted earlier. Is it worth it? It may be in particular financial situations. I don’t think that it would be that useful for a small investor.</p>
<p>Back in the early '90s, Thai banks were paying interest rates in the teens, if I recall correctly. As a permanent Thai resident, my dad had to keep a certain amount in Thai currency. He was very happy for a time, till the Baht crashed. But chalked it up to cost of living in a country he loved. I vaguely considered opening an account there, but was glad I didn’t.</p>
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<p>That’s expected. The Bank of Japan is the most unique asian central bank. They follow the U.S policy of quantitative easing. They have virtually zero interest rates as well. It’s basically just a copy of the U.S policy.</p>
<p>The government there wants the currency to be undervalued to improve their competitiveness so that was basically their goal and it seems they achieved it by your latest post. The problem is when a country loses its value while having such high interest rates like India.</p>
<p>It’s not right to consider Japan’s case since they intended for that to happen but I agree with the rest of your points pretty much.</p>
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<p>Actually you brought up Japan:</p>
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<p>A lot of people thought that the US currency was going to tank and they had a lot of good reasons to believe that. But it turned out that Europe became a basket-case and the US has incredible amounts of recoverable energy reserves. This has given the Fed a lot of leeway in executing an easy-money policy for quite some time without worrying about the currency collapsing. As an extreme example, look at what gold has done in dollar terms. It’s down about 50%.</p>
<p>I do tend to watch the economic news in countries where we hold assets and it’s extra work to keep up. My wife just told me of a new 30% exit tax for foreigners for one of her investments - and I just told her that there really isn’t anything that we can do about it and it’s just fortunate that it’s a relatively small amount of money.</p>
<p>Do you have any actual experience in foreign investments?</p>
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<p>Although it is odd that the euro still stays around 1.30 USD.</p>