Icelandic Currency Distortions

by | Apr 2, 2008 | Archives

Currency  distortions in Iceland can create extra cash now with very little risk.

See later in this message how currency distortions create property value on this Ecuador lake.

currency distortions
Recent messages have looked at why economic distortions make this an exciting time for business and investing.

Investment distortions, economic distortions and currency distortions create problems.  Problems create investment and business opportunity.

The economic distortions in the US for example have forced the Fed to drop interest rates so low that one can borrow US dollars at Jyske Bank for 4.875% – 4.124% depending on the amount borrowed.

The low dollar interest rate creates a currency distortion. Weak currencies usually have high interest rates.  This currently is not so and creates a currency distortion similar to the low interest rate for the Japanese yen.

There is also a currency distortion in Iceland that coupled with the US dollar distortion can create profit with little risk.  Investors who have enough cash can use a combination bond investment and forward contract that earns about 7.1% for the next nine months.

Work this currency distortion out.  You borrow at 4.1%. You earn 7.1%. You earn 3% for nothing, except for taking the Icelandic kroner currency risk.  Right?

Wrong.  In this case, there is no currency risk because of another currency distortion with the Icelandic kroner.

At the same time you buy the bond, you also buy an  ISK/DKK spot contract.   A currency distortion between the Icelandic and Danish kroners allows you to hedge the risk at such a low rate that you are protected against the Icelandic kroner’s fall.

This double currency distortion greatly enhances the safety of this deal.  Te Icelandic government bond is liquid. It is issued by the Icelandic
state, which has a rating of Aaa/AA.   The yield to maturity of the bond was  14.77%  p.a. three days ago.  Check with your banker broker or advisor about this.

In short this bond is as safe as a bond can get.

Normally an investor would have exposure to the Icelandic currency dropping.
This is not good as it has been a weak and continually falling currency.

Under normal circumstances such a hedge would not work.  The cost of the hedge would eliminate the interest – rate difference, but a currency distortion at the time of writing this such is not the case.

This will be available for a very limited window of opportunity and the size of the forward contracts required mean this only works with investors who have $200,000 or more to commit.

Currency distortions can help small investors as well.

Take, for example, exports from Ecuador.  Ecuador had a huge currency disruption with the sucre continually falling against the US dollar.  So Ecuador changed to use the US dollar as its currency…thinking the dollar would be strong.

This created a huge currency distortion as the dollar fell against other latin currencies such as the Brazilian real and the Colombian peso.

This has made Ecuador export products very inexpensive!

This is why we have been helping readers develop Ecuador export businesses using the Internet.

Michelle Toole, for example, just sent us this note.  She started after attending our import/export course and what is remarkable is that she was not a person with previous extensive experience or a computer whiz and had very little capital.

“Last month turned out to be a great month for my website.  Things are really starting to take off….I am now seeing anywhere from 700 – 900+ visits per day, I am being contacted on a regular basis by advertisers wanting to purchase ad space, other sites are contacting me to consider possible joint ventures, a very successful disability advocacy site is going to be promoting my e-book and I will be doing my first web interview for a site next month!  It is all truly amazing!

“All of my efforts are paying off literally… my little trickles of income are fast becoming streams…..the funny thing is it almost feels like free money!  I know that sounds odd I have certainly put a lot of time and energy into my projects but when you follow your passion and invest in yourself the return is different than if you were ‘working’ for a pay check.

“As always I thank both you and Merri for your endless support and knowledge and I look forward to sharing my experiences and successes with both of you for years to come!  love to you both,  Michelle”

This is why we focus on how to market Ecuador exports at our Ecuador exports course.  Toward this end we also help readers learn how to use the internet in their marketing.

To help readers improve their internet marketing ability we are featuring a FREE course provided by Michelle Toole.

Michelle was a student at our Ecuador Exports course last year and has done well in building good rankings at her website so we asked her to share how she has attained this success. Read about by clicking here.

We’ll look at currency distortions  at our
May 23-25 International Investing & Business Made EZ North Carolina

Until next message, may all your currency distortions be good.


April 16-17 Ecuador Imbabura Real Estate Tour

The falling dollar is helping keep Ecuador real estate prices low. We’ll view numerous lake properties like this one (and another below) on our upcoming real estate tours.

currency distortions

June 7-8 Coastal Real Estate Tour

June 11-15, Super Thinking + Spanish

June 16-17 Imbabura Real Estate Tour

Here is more Lake front property we’ll see on our Imbabura real estate tour.

currency distortions

June 19- 21 Ecuador Shaman Tour