How long does the carry trade strategy last?
Let’s remember that it is a strategy that consists of investing in assets in pesos, capturing the profit and then repurchasing dollars. The investor has dollars (or borrows them at a low rate), which he exchanges for pesos, invests them in any asset in pesos that reports a profit, and after a certain time, buys dollars again. In the end he has more dollars.
You can invest in any instrument in pesos that reports some profit, but this profit must be high. How tall? At least greater than the variation in the exchange rate (without considering expenses).
Suppose an investor at the beginning of the month decided to put together this strategy. He had $10,000 that changed to pesos at an exchange rate of $293.5getting $2,935,000, and placed them in a fixed term at 75% TNA (6.25% monthly). As of November 30, it will charge $3,118,756. To simplify the analysis we do not consider operating expenses.
What will be the result of the strategy?
It will depend on the exchange rate of 11/30, when this investor buys back the dollars. Let’s evaluate different scenarios.
As can be seen in the table, the strategy supports a rise in the MEP equal to the rate in pesos, that is, 6.25%. At today’s values, it yields 0.9%.
In our country, exchange peace does not last long, so the carry trade is an extremely risky strategy since the profit of the month can be erased in a few days.
How much would the dollar have to go up for this investment to be bad?
The answer is simple, the MEP must rise more than what the alternatives yield in pesos. In our case, the dollar should rise above $311.8.
Financial advisor.
Source: Ambito
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