hzsh2009:

Thanks! but I still have two small questions, one is that why other countries rates go up-> weakens foreign economy, and two, since the rates in US also goes up, wouldn't that lead to the deprecation of dollar, which offset the result of depreciation of foreign currencies like rupee? Please inform.

1) Price of imports goes up or if debt is denominated in foreign currency, but this can be offset with exports, so it depends 2) Interest rate parity doesn't hold short-term, and probably not in the long run either.
hzsh2009:

can you explain what do you mean by risk currencies?

Inflation, pressure on peg, highly volatile (questionable?), unsustainable debt level, political risks.
 

U.S. is the best credit risk available (questionable but just go with it) thus pays the lowest interest rate-> tapering causes rate to go up-> other countries rates go up as a result-> weakens foreign economy-> less appealing foreign investments-> foreign investments are sold-> foreign currency is converted out of -> foreign currency depreciates...but I could be wrong

 

Thanks! but I still have two small questions, one is that why other countries rates go up-> weakens foreign economy, and two, since the rates in US also goes up, wouldn't that lead to the deprecation of dollar, which offset the result of depreciation of foreign currencies like rupee? Please inform.

 
alpo:
FrankD'anconia:

U.S. is the best credit risk available (questionable but just go with it) thus pays the lowest interest rate-> tapering causes rate to go up-> other countries rates go up as a result-> weakens foreign economy-> less appealing foreign investments-> foreign investments are sold-> foreign currency is converted out of -> foreign currency depreciates...but I could be wrong

laughing out loud...higher interest rates attract capital big dog. You have a disconnect and minimal understanding between FDI, FX swaps and carry trades

Ya got me boss, too bad I didn't make the clarifying statement that I could be wrong.... just kidding, I did. Fwiw though, I dont see why your theory would hold if the other country's rates rose as well.

 
Best Response
alpo:
FrankD'anconia:

U.S. is the best credit risk available (questionable but just go with it) thus pays the lowest interest rate-> tapering causes rate to go up-> other countries rates go up as a result-> weakens foreign economy-> less appealing foreign investments-> foreign investments are sold-> foreign currency is converted out of -> foreign currency depreciates...but I could be wrong

laughing out loud...higher interest rates attract capital big dog. You have a disconnect and minimal understanding between FDI, FX swaps and carry trades

U really shouldnt be laughing "big dog" because while higher rates do generally draw in capital, many emerging markets including India are also supported by equity flows which flee higher rates. This is one of the reasons EM rate hikes don't always work to protect currencies...indeed India hiked on day 1 of this crisis and USDINR ended the day up 2%ish. So no need to insult this guy when a) he said he wasnt sure and b) you werent even right in your response.

And no one has the "correct" answer for why taper-talk caused such an EM meltdown...there are many reasons why it has gotten so ugly and there is no one right reason.

 
cauchymonkey:

if US rates go up, the yield on foreign investments is less attractive compared to safer ones (so currency depreciates). places like india have shitty options... raise interest rates to protect currency? hurt economy. dont do that? rupee goes to shit

+1

Carry becoming less attractive is a signal which creates an incentive for the mkt participants to get out of EM. For some places where positions are large and idiosyncratic issues are present (e.g. INR, IDR, BRL), this ends up resembling shouting "Fire!" in a crowded theatre.

 

It's actually a mixture of reasons:

  • Excess liquidity that has been a result of QE has been pumped into higher yielding assets (EM). Once that Liquidity detox starts to take place, there is a natural pull back of risk assets, EM suffers, and the ccy depreciates

  • Normalising of USD rates will cause the reversal of EM money to the the US.

 
Bondarb:
alpo:
FrankD'anconia:

U.S. is the best credit risk available (questionable but just go with it) thus pays the lowest interest rate-> tapering causes rate to go up-> other countries rates go up as a result-> weakens foreign economy-> less appealing foreign investments-> foreign investments are sold-> foreign currency is converted out of -> foreign currency depreciates...but I could be wrong

laughing out loud...higher interest rates attract capital big dog. You have a disconnect and minimal understanding between FDI, FX swaps and

U really shouldnt be laughing "big dog" because while higher rates do generally draw in capital, many emerging markets including India are also supported by equity flows which flee higher rates. This is one of the reasons EM rate hikes don't always work to protect currencies...indeed India hiked on day 1 of this crisis and USDINR ended the day up 2%ish. So no need to insult this guy when a) he said he wasnt sure and b) you werent even right in your response.

And no one has the "correct" answer for why taper-talk caused such an EM meltdown...there are many reasons why it has gotten so ugly and there is no one right reason.

I don't have to energy to argue this right now. Interest rates strictly carry more clout than equity flows (see A History of Interest Rates, Homer/Sylla). I appreciate you trying to be a hero, though. In any event, I do agree there are many reasons as to why there is a meltdown in EM.

 
alpo:
Bondarb:
alpo:
FrankD'anconia:

U.S. is the best credit risk available (questionable but just go with it) thus pays the lowest interest rate-> tapering causes rate to go up-> other countries rates go up as a result-> weakens foreign economy-> less appealing foreign investments-> foreign investments are sold-> foreign currency is converted out of -> foreign currency depreciates...but I could be wrong

laughing out loud...higher interest rates attract capital big dog. You have a disconnect and minimal understanding between FDI, FX swaps and

U really shouldnt be laughing "big dog" because while higher rates do generally draw in capital, many emerging markets including India are also supported by equity flows which flee higher rates. This is one of the reasons EM rate hikes don't always work to protect currencies...indeed India hiked on day 1 of this crisis and USDINR ended the day up 2%ish. So no need to insult this guy when a) he said he wasnt sure and b) you werent even right in your response.

And no one has the "correct" answer for why taper-talk caused such an EM meltdown...there are many reasons why it has gotten so ugly and there is no one right reason.

I don't have to energy to argue this right now. Interest rates strictly carry more clout than equity flows (see A History of Interest Rates, Homer/Sylla). I appreciate you trying to be a hero, though. In any event, I do agree there are many reasons as to why there is a meltdown in EM.

u r using a DM framework to analyze EM markets...wjhen vol picks up EM currencies always follow the equity flow not the rate differentials. I am not "trying to be a hero" i just have actual experience trading EM markets unlike you.

 
Bondarb:
alpo:
Bondarb:
alpo:
FrankD'anconia:

U.S. is the best credit risk available (questionable but just go with it) thus pays the lowest interest rate-> tapering causes rate to go up-> other countries rates go up as a result-> weakens foreign economy-> less appealing foreign investments-> foreign investments are sold-> foreign currency is converted out of -> foreign currency depreciates...but I could be wrong

laughing out loud...higher interest rates attract capital big dog. You have a disconnect and minimal understanding between FDI, FX swaps and

U really shouldnt be laughing "big dog" because while higher rates do generally draw in capital, many emerging markets including India are also supported by equity flows which flee higher rates. This is one of the reasons EM rate hikes don't always work to protect currencies...indeed India hiked on day 1 of this crisis and USDINR ended the day up 2%ish. So no need to insult this guy when a) he said he wasnt sure and b) you werent even right in your response.

And no one has the "correct" answer for why taper-talk caused such an EM meltdown...there are many reasons why it has gotten so ugly and there is no one right reason.

I don't have to energy to argue this right now. Interest rates strictly carry more clout than equity flows (see A History of Interest Rates, Homer/Sylla). I appreciate you trying to be a hero, though. In any event, I do agree there are many reasons as to why there is a meltdown in EM.

u r using a DM framework to analyze EM markets...wjhen vol picks up EM currencies always follow the equity flow not the rate differentials. I am not "trying to be a hero" i just have actual experience trading EM markets unlike you.

Yep. EM's trade categorically differently than DM markets...it would make sense that they follow equity flows rather than bond flows, since both are considered "risk assets" by most influential pools of capital today.

 

Eaque sit dicta quod eveniet adipisci. Quia non excepturi natus quia. Voluptatum vitae exercitationem expedita illo est. Architecto unde doloribus ad totam. Perspiciatis ut aliquam et tenetur iste dicta qui. Et nostrum suscipit doloribus reiciendis distinctio.

Ex unde non ea eos sint. Non maxime sint sit. Est totam dignissimos et et tempora.

Iure et dicta distinctio est omnis. Ea quasi quod voluptate id porro nisi tempora quas. Et rerum eveniet facere accusamus. Consequatur quia sint sit laudantium sed unde. Commodi ea est animi. Modi ut qui aspernatur tenetur quia et dolor. Ex unde suscipit ipsum consequatur reprehenderit.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”