Turkish Deposit Account

chubba1984

I am trying to decide whether to invest in a deposit account with a Turkish bank, generating 13% return approx. after Turkish withholding tax. I believe 20% Irish Income Tax will also have to be paid on top of this. As the investment will be in turkish lira, it may be subject to exchange rate risks, the exchange rate v the euro is steady currently after a period of devaluation in de early naughties. I was wonderin who I should discuss exchange rate risk with or if anybody has any opinions on the viability of the investment

hmmm

Personally from the tone of your comment I think you are probably underestimating the exchange rate risk. The "money market", that collection of top 1% of Harvard graduates and ex rocket scientists that shift trillions of euros around the world have decided that the Lira is a weak currency and you're going to be betting that they're wrong. I don't fancy the odds.

dublinli

i am not sure where u are getting %13 return after tax in a turkish deposit account. even if that is the case you will only pay 20 per cent tax here from your profits, i.e. capital gains so that brings your gain to 10.4 per cent.
In relation to the value of the turkish lira I think you may not want to depend on the top 1% harvard garuates or the rockets scientists too much, there is never a general statement as a curreny is weak. a currency might be weak during certain times due to macroeconomic finances of a country. there was a devaluation of the turkish lira recently during the summer which was around 25 per cent, so your 13 per cent would have been gone, but on the other hand it seems to be getting back to its levels during the summer. it is true that the lira gained value over the last 4 years or so (except the devaluation through the market during the summer)

hmmm

dublinli wrote:

In relation to the value of the turkish lira I think you may not want to depend on the top 1% harvard garuates or the rockets scientists too much, there is never a general statement as a curreny is weak

True true, some Paddy who went there on holidays once would obviously know much more about a countries macroeconomic prospects than all those fancy dan Wall Street types who earn several hundred million a year managing this sort of thing. The budget deficit for Zimbabwe hit 48% of GDP yesterday, I'm sure you'll get great nominal rates of interest over there too.

chubba1984

I am aware of the Turkish exchange rate risks and problem it faces, did a dissertation in college on it last year, just wanted to see what others thought. If the "collection of top 1% of Harvard graduates and ex rocket scientists that shift trillions of euros around the world have decided that the Lira is a weak currency", that's good enough for me, I wonder where I left my post office account book, it's got to be around here somewhere......

dublinli

hmmm wrote:

True true, some Paddy who went there on holidays once would obviously know much more about a countries macroeconomic prospects than all those fancy dan Wall Street types who earn several hundred million a year managing this sort of thing. The budget deficit for Zimbabwe hit 48% of GDP yesterday, I'm sure you'll get great nominal rates of interest over there too.

the paddy you are talking about is a turkish economist working and living in ireland who has been following the turkish economy since he was 16 with inflation rates hitting 150 per cent.
if u have a look at figures u will see that the overall general government deficit has declined from around 30% of GDP in 2001 to around 1% in 2005. At the same time, net public sector debt declined from 91% of GDP in 2001 to 56% in 2005. The inflation is around 9 per cent p.a. at the moment but if the exchange rate does not refelect on changes in price inflation, as it did not between 2003 and 2006, than foreign investors will invest in Turkey without a currency risk, which has been happening in the last 3 years. If above holds than your real interest rate will be the interest rate you get in turkey less the inflation in ireland since you do not live in turkey and the opportunity cost is not in turkey but in ireland, that is as i said given excange rates do not react fully to interest rates.
all i said in my reply was the fact that he needed to do his calculations a bit better and he will still get some value, more importantly rather than opening a bank account and putting it in saving account why not open the account and invest in treasury bonds which have better return of rates

hmmm

dublinli wrote:

the paddy you are talking about is a turkish economist working and living in ireland who has been following the turkish economy since he was 16 with inflation rates hitting 150 per cent.
if u have a look at figures u will see that the overall general government deficit has declined from around 30% of GDP in 2001 to around 1% in 2005. At the same time, net public sector debt declined from 91% of GDP in 2001 to 56% in 2005.

blah blah blah. I don't have to be (and no-one has to be) a Turkish economist and I don't have to be an expert on the Turkish economy because the money market prices reflect the balance of opinion from every economist and trader who tracks a country. If economists and currency traders believed that a currency was undervalued, there would be an arbitrage opportunity available which would be taken advantage of (let's talk Soros and his band breaking Sterling). You think they're wrong fair enough, the market as a whole disagrees with you.

Here's a graph of the Turkish Lira vs US Dollar exchange rate, if you enjoy rollercoasters.

dublinli

hmmm wrote:

blah blah blah. I don't have to be (and no-one has to be) a Turkish economist and I don't have to be an expert on the Turkish economy because the money market prices reflect the balance of opinion from every economist and trader who tracks a country. If economists and currency traders believed that a currency was undervalued, there would be an arbitrage opportunity available which would be taken advantage of (let's talk Soros and his band breaking Sterling). You think they're wrong fair enough, the market as a whole disagrees with you.

Here's a graph of the Turkish Lira vs US Dollar exchange rate, if you enjoy rollercoasters.

well your attitude is apparent from the blah blah blah anyway, have a look at george soros investment in turkey then, what you are gorgetting is the additional sum of foreign currency developing countries can get during a period of time through privatisation etc where even soros can not break the band, such as 10 billion euro in 2005. the turkish currency is definietly undervalued at the moment but but why do you think the foreigners are investing in the market then with around 20-30 per cent real return in 2006 with an investment of around 20 billion during the year. They prefer the currency to be undervalued so that once they take their money out of the stock market or treasury bonds the exchange rate depreciation will not hurt their earnings. you go ahead and try to follow the soros and your rockets scientist if you don't care about anyone else's opinion.