EverBank and foreign currency CDs?

High yield and high risk go together, like a hand and glove, like breathing in and breathing out. A lot of people as the years go by are quick to believe they have at last found an exception to this fundamental financial principle, but over and over again reality bites. That doesn't mean that nobody can make a killing in foreign currencies and other risky investments. It means that the chances of doing so are very small and the chances of losing your shirt are very large.

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Your observation is right. Risk goes with reward. In this particular case, there is a theory called "interest rate parity" easy to google and find good definitions. It basically claims that if I buy a foreign CD at

10% instead of a US CD at 5%, (one year), that is a sign the market is pricing the foreign currency to drop by 5% against the dollar during that time. You are actually bet against the 'big boys' to buy such a CD thinking exchange rates are doing something else. I was going to counter your 'lose your shirt' remark, until I reread OPs choice of Brazil as one of the countries. The currency risk there may very well be at that level. (I am no expert on annual exchange rate volatility, but that is what OP should study to better understand his risk.

JOE

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You could follow your own advice, Google "uncovered interest parity", and learn that empirically most of the evidence is *against* this theory. The second paragraph of my earlier reply summarizes the evidence. I also posted a message earlier in this newsgroup about "emerging market bond funds", citing a paper that found they can play a role in individual investor portfolios.

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This scenario is also an excellent example of the fact someone seeking financial advice faces two kinds of risk. The first is the risk of the investment product itself. The second is the risk of buying a product, maybe itself risky, maybe not, from a person or organization that sells the product for too much or skims off a lot of the gain -- in this case

5% of an already questionable 12%!

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Well, I just learned something. I know theories aren't all 100% such a EMH, or such, but didn't know interest rate parity was canceled as a valid hypothesis. Not a very common topic. This is how I felt when they canceled Pluto..... JOE

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Last I looked, their website admitted of huge comissions on exchanging your $ into and then back out of the foreign currency - so much that many months of interest would be cancelled out.

has etfs that appear to do this morecleanly, and many more are in the works according to news. Or investin a stock or bond fund based in foreign currency. Big irrationalitiesexist in currencies and interest... that make reward not based on riskover the last few years, but maybe soon the gravytrain will stop.

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One word: "1998". Everyone from individual investors to giant hedge funds was playing emerging markets and international exchange. Many got burned when two currencies went south overnight and the US banking system almost collapsed. (The Fed assembled a consortium to alleviate a hedge fund run by Nobel prize economist that had bad bets nearly the size of th US GDP.) And one hedge fund accused of triggering the currency run (Soros) cleaned up.

Dont bet what you cant afford to lose. Kep diverse in this era of uncertainty.

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