Carry Trade Part.III

This trend leads to a significant increase in financial markets, coupled with the disappearance of the concept of risk in the minds of market players due to a depletion of non cash flow. However, a decline of return on financial markets, a sudden reversal of the market, would result in substantial losses for investors, given the high level of leverage and risk now borne in the carry trade. Such a situation would cause a repositioning of investors followed by a rapid and concomitant unwinding of positions in many currencies.

The lower level of liquidity resulting from this movement would affect all markets and could be the detonator of a global currency crisis or a global economic crisis. The same situation was experienced in 1997-1998 in Asia while the yen carry trade operations had already been implemented and that the Russian market, object placement, had fallen sharply. Today the extent of yen carry trade is more important and the crisis would reach Europe and the United States, countries in which investments are made.

Against a backdrop of continued increase in U.S. and European markets, increasing the risk borne by financial transactions recently introduced, the Japanese monetary policy is closely watched by central banks. To prevent slippage of the financial markets, a gradual closing of the "tap" cash is needed and must go through a rate hike. However, the continued movement deflation in Japan does not motivate a significant rise in interest rates. Japan cannot afford to hire a genuine policy of monetary tightening; the Bank of Japan announced Feb. 21 an increase of 0.25% and should not go much further in the short term.

Several questions arise: what are today the real levers available to the Bank of Japan? Central banks have they any means to influence the global liquidity? Is it too late to avoid the worst?

Carry Trade Part.II

Since last few years, the carry trade is the most developed of the yen carry trade, however, note that they are also processed the Swiss franc.

For investors, the yen carry trade is interesting on two levels: firstly because of the difference in rates (the Bank of Japan lends at a rate of 0.25%, while investors can invest this money to rates above 5% in England and the United States), secondly because the yen's depreciation during the duration of the operation.

The situation faced today was introduced by Japan's economic policy. Following the crisis of the 2000s, Japan and the United States and Europe have dropped their rates sharply to avoid an economic slump. However, if the United States and Europe have been sharply reversed the trend, growth in Japan that has developed since then have been accompanied by a significant reduction of unemployment, low wage growth but to no inflationary pressures, the Bank of Japan was not forced to change its monetary policy and rates remained extremely low (0.25%). The yield spread, which has gradually opened up between the rates of Western central banks and the central bank has caused the Japanese yen carry trade phenomenon. The main actors are not taking advantage of that opportunity, the more comfortable it is artificially maintained by the Japanese central bank and no sign of change seems to appear.

However, significant risks facing the global economy. The current danger is that the carry trade is no longer limited to playing on differences in rates, but it greatly increases the global liquidity moving into the pockets present in economies with weak currencies to countries with high rates. The yen is borrowed in dollars, pounds sterling, Euros ... then invested in operations with high leverage.

Carry Trade Part.I

The asset borrowed at low rates is placed in high-yield assets is otherwise called Carry trade. Today, the phenomenon has grown strongly over the yen and becomes problematic. Many analysts calling the Banks to reconsider their policy. They do not seem to find echoes in Japan, but show an awareness of the danger generated. However, non-termination of existing problem at the G8 conference does not seem to go in the direction of a rapid response. The carry trade exchange, a concept theoretically unworkable in the long term.

A carry trade involves borrowing in foreign exchange currency in a country where rates are low, to change this amount in a currency "strong" and place it at high rates (treasury bills ...). Theoretically, the operation of the arbitrage transaction is ephemeral because the markets are efficient (at each moment is a financial security to its price) and rebalance through exchange rates and interest rates.

Moreover, because of the rule of parity uncovered interest rate, the interest of such an operation is theoretically zero. Indeed, a difference in rates between two countries reflects inflation differentials. But these differences are offset by a realignment of exchange rates. Thus, when an investor speculates on the difference in rates between two countries, he loses the same value on the exchange. That said, sometimes the law does not hold true in fact and that the currencies of countries with low rates suffer the opposite effect and depreciates. This is the case on the yen, which reached historic lows against the U.S. dollar and the euro.

Second life Of Online Banks Part.II

Boursorama is a convincing example of this model. Since its merger with Societe Generale, Boursorama is no longer confined to the business broker but has become a real bank. However, if the online bank has no place as an independent financial organization, recent operations have shown that banking online is now essential to any actor with a network. Newcomers in the banking landscape have understood. Insurers having embarked on the adventure of assurfinance began by acquiring or developing a range of online banking in addition to the existing branch network.

The acquisition of online banks by banks should not be seen as a way to computerize the customer relationship. Indeed, banks are now looking to boost their network by opening branches. The agency is the best way to attract customers, offering Internet users the opportunity to simplify the management of current operations.

Nevertheless, some players have managed to build a profitable model around online banking service. This model is based on tactical development articulated in two phases:

(I) a startup focused on specialized and profitable activities. For example, the tactic is to capture customer deposits and generate commissions on high value added activities (securities, life insurance ...) for which the customer is willing to pay.

(Ii) extension to activities of daily bank (current accounts, credit card) which are less profitable, because requiring investment in major infrastructure, earn little and are subject to very strong competition.

Second life Of Online Banks Part.I

In their early days, online banks were intended to attract a large clientele by proposing a new model of bank: Account Management possible at any time and from any computer connected to the Internet, with an offer "discount". Using the Internet as the only interface between the bank and the customer had in fact enable substantial savings, both in terms of personnel but also capital assets. Thus, online banks offer rates were very aggressive on a range of services equivalent to that of a traditional bank. However, they failed to offer prices low enough to stand out, to forget the absence of physical relationship between the customer and the banker, and succeed in capturing some of the customers used to a classical model.

Weakened by the explosion of the Internet bubble in 2000, online banks could not withstand the intensity of competition in the banking sector, especially as traditional banks, although lagging behind the banks line, developed or acquired equivalent services. The interest of a pure player in online banking has therefore been questioned since it was possible to combine customer relationship in a network, and maximum flexibility via the Internet. The only entities that have managed to sustain their existence are those that are backed by a bank, maintaining an independent identity. This allowed them to diversify their services, taking advantage of operational know-how and organizational parent companies and thus offer very attractive prices.