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International CDs

drftr
  |     |   5 posts since 2013

Hello,

 

I'm considering opening HSBC Advance accounts in Brazil, Turkey, India and Indonesia (all investment grade countries - for what it's worth) and buy 12 month CDs or, as HSBC calls them, time deposits. The yields are all very high being over 8%. I could buy short time sovereign bonds through a US broker as well but of course that adds currency risk. And if I want to avoid currency risk with short term bonds it will hurt yields, reducing them by 50% or so. But when opening accounts in these countries themselves and buying 12 month CDs in their local currency at least in theory I do get this 8-11% yield without the currency risk as I can either renew the CD at maturity or cash out in local currency on the local banking account. With cash sitting in local accounts I can either wait for even better interest rates (market crash, inflation, etc) or convert into dollars once the exchange rate is good enough. Doing so SEEMS to be the best of best worlds. But is it?

 

Other options would be to simply buy sovereign bonds in local currencies through a US broker and hedge the currency risk. But then of course I can't use the money that I use for hedging, limiting my total yield. And the other idea would be to open the same accounts as mentioned but not trade CDs through them but sovereign bonds in the local currency. When reaching maturity they won't be automatically converted to USD but simply paid out in the local currency, again avoiding the currency risk like described before.

 

Since I haven't used this concept before my questions are as follows:

 

A) Which of my investment options seems the best?

B) Am I missing any important risks or costs?

C) Does anyone have experience with investing in this way?

D) Is there anyone out there who has HSBC deposit accounts in the countries mentioned and, if so, what are your findings until now?

 

Any responses would be highly appreciated.

 

drftr

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4


Answers
Shorebreak
  |     |   4,039 posts since 2010
Read these articles first:

Foreign-currency CDs: tempting and risky

http://www.bankrate.com/finance/investing/foreign-currency-cds-tempting-and-risky.aspx

Overseas Government Bonds Tempt US Buyers

http://www.bankrate.com/finance/i...yers-1.asp
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6
Ricochet
  |     |   522 posts since 2010
Articles over 2 1/2 yrs old.

I probably wont go this route but

Who are the "safer" players overseas now?
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3
drftr
  |     |   5 posts since 2013
Thanks for the links Shorebreak. I've read similar articles but unfortunately they don't answer questions about hedging or opening overseas accounts to avoid currency risk. If you have any opinion on these subjects I'd be highly interested. Thanks again!

drtfr
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1
Shorebreak
  |     |   4,039 posts since 2010
Here is a 'Foreign Investors Guide' for a particular country. This example is for Serbia.

NBS | Foreign Investors Guide
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3
howardt55
  |     |   5 posts since 2015
You may have to report foreign bank assets (FBAR) to the U.S. treasury. Yes?
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4
Kennewickman
  |     |   17 posts since 2013
You must note that you have a foreign account on your 1040 tax return and if you have greater than $10K must file an FBAR - FinCen report 114 with the U.S. Treasury. I USE TO have a couple European accounts. WARNING! I always did everything by the book, everything reported correctly on time, have no criminal record, and still got put on a travel watch. Had my bags searched at every airport, foreign and domestic. Finally after a couple years, I was able to get off it with the help of a Secret Service agent I knew who was being assigned to the FinCen office in Detroit.
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4
planxy
  |     |   140 posts since 2013
A taxpayer who has an interest in or signature authority over certain foreign accounts must inform the government of the existence of the accounts each year by checking the box in Part III, line 7a, on Schedule B, Interest and Ordinary Dividends, of the taxpayer’s Form 1040, U.S. Individual Income Tax Return. Penalties for merely not checking the box can be harsh, especially if it seems concealment was attempted. Many believe merely checking the box materially increases your chances of being audited.
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1
lou
  |     |   1,004 posts since 2010
drft, do you have a link for the international CD rates?

Do they specify how much the fees are? I don't really follow why you don't think there is any exchange risk. At some point you will want to convert the money back into dollars and it may not be at the rate you bargain for. When you do convert the money, is the exchange rate determined by HSBC or a reputable index? There may be a big spread, allowing them to take a huge fee at your expense.
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1
drftr
  |     |   5 posts since 2013
I'm not aware of a comprehensive HSBC site with all the rates collected so you'll have to visit the individual country websites. But you can get a good indication on www.deposits.org which I think is quite up to date.

Unfortunately fees vary per country but on the individual websites there's often a link to a PDF with the latest exchange rates and fees. I'm not considering exchange rates to be a risk because for the countries mentioned they're very low already historically speaking. But what's more important is that I don't need the money once the CD matures so the money will just stay in the local bank account in the local currency. Then it's up to me to decide when to convert to dollars (I will open dollar accounts at these banks at the same time). Could be straight away when maturing and then just wire my money out of the country (no special procedure for money coming from a CD). But I could also decide that exchange rates are not in my favor at that very moment and buy another CD or just keep the money in a normal savings account in that country, which would still pay you a lot more interest than in the US.

drftr
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3
IGR
  |     |   580 posts since 2020
Wow!!!

Finally, somebody contemplates FI and Currency arbitrages and starts with the question about what it SEEMS THE BEST...all Fixed Income Traders jumping out of windows in shame.
The answer is primitively simple...ANY... at "very high being over 8%" you'll be a looser the moment you drive the car of the dealer's lot. Why settle on 8-11% in times when folks who risked at 30% in Turkey couple of months ago looking forward to reinvest at 45%?
I don't think as US Resident you can have HSBC Foreign Currency Account without legitimate Foreign Registered business or Person with legitimate reason to establish the Tax Residency in Foreign Country, otherwise HAMAS would be HSBC biggest US Customer.

My lists of "investment options seems the best"...can't restrain myself.
1. "Brazil, Turkey, India and Indonesia (all investment grade countries - for what it's worth)" at 50% Yield.
2. Argentina and Mozambique, one notch below "investment grade countries - for what it's worth" at 100% Yield.
3. Venezuela and Tanzania, two notches below "investment grade countries - for what it's worth" at 200% Yield.
4. Choice of Russia or Ukraine at 500% Yield.
5. Kenyan Prince at 5000% Yield.
6. IGR at 0% Yield - NOT ""investment grade country" BUT "what it's worth" is NOT "missing any important risks or costs".
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