Foreign "Currency Sandwich"??

Is anyone familiar with this investment technique? You take out a bank loan from a country with the LOWEST interest rates (say Japan) and deposit that loan into a bank account with the HIGHEST interest rates. I have a bank account in Iceland and some of there rates are between 8-15% interest. Can i do this without leverage? Thanks

Foreign %26quot;Currency Sandwich%26quot;??horses for loan

Problem with this is, the countries with the highest interest rates ALSO have the highest INFLATION rates. So by the time you have made your 8% interest, your %26quot;profit%26quot; is halved by inflation, then further decreased by the loan interest amount, and finally by foreign and domestic income taxes.

Once you are done with that, you probably would have been better off investing in a stateside CD in the first place...

Foreign %26quot;Currency Sandwich%26quot;??

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What you%26#039;re talking about is called the %26quot;carry trade%26quot;. With interest trades being Zero in Japan, the Yen carry trade flourished. The problem is that in order for your carry trade position to be profitable, 2 things must happen.

1) The interest rate differentials must maintain a gap. Japan has started to raise rates and the Fed is hinting towards a rate cut.

2) The exchange rate of the country you borrow in must remain weak against the currency that you%26#039;ll be investing the funds in. The yen has substantially strengthened against the dollar.

Unless you know what interest and exchange rates are going to do, you could very quickly find yourself in deep trouble if these two items move against you.|||There is no way to do this without leverage, since you are borrowing the money to invest (this is margin or leverage). It would also be risky, because currency fluctuations could wipe out any profits you might make from the interest rate differential.