Skip to main content

Speculative currency trading

Ever since I started understanding the little economics that I do know, I wondered whether it was possible to make money using currency (to be precise, speculative trading in currency). Currency changers have long been making money trading in currency, using different rates for buying and selling.

No, this post is about making money in the time dimension: Is it possible to make money by utilizing the fluctuations in the exchange rates? Ideally, the answer would be that it is impractical, that better returns shall be obtained with other investments. However, the roller coaster ride of the rupee vs the dollar has got me thinking about this again.

The rupee was at around 45 rupees to the dollar until at least August or September 2011. Now it is at around 53 rupees to the dollar as I write this article in January 2012. Which means that in a span of around 4-5 months, the rupee has been devalued by around 7 rupees to the dollar. Let us assume that I purchased a lot of dollars in August, say 1000. For this, I had to spend around 45000 rupees. Now, I sell those dollars, and I get 53000 rupees, a profit of 8000 rupees, or approximately 18% in 4 months. Further, the rupee is soon going to go back to the earlier levels of 45 rupees to a dollar in the next few months, say a year. Extremely lucrative markets exist for speculative trading in currency.

Now, I add a subversive element to the argument. Let us assume that someone closely associated with the government and with its workings has some vested interests. So, the government policies can be changed according to the wishes of this particular person. (I shall also oversimplify some of my arguments, just to make a point. I'm not going to nitpick.) Now, assuming that the government is corrupted thus, speculative trading in currency becomes easier. In fact, it no longer is speculative, because the all-important person is dictating the game.

Now, we move beyond small sums to much larger ones. If this person was to get a large amount of money in the market, (s)he would (I'm not being sexist here; women can be as much if not greater rouges than men) push the government to modify economic policy to allow foreign investment in the Indian market. By investing slowly, the person can ensure that the Indian markets rise, and the rupee falls to a lower exchange rate and that the markets rise. Now, the person withdraws suddenly, causing the markets to crash, and the rupee to be devalued again. In this case, the cycle would take a longer time, say a year. However, profits shall not be just due to trading the currency, but also in the Indian markets. So, the net return would be much higher than what is just by trading in currency.



This article, like many others in this blog, is written in jest. Read into it what you will.

Popular posts from this blog

Progressive Snapshot: Is it worth it?

I turned 25 last year, which in the highly mathematical and calculating eyes of the US insurance industry meant that I had suddenly matured into a much more responsible driver than I was at 24 years and 364 days of age. As a result, I expected my insurance rates to go down. Imagine my surprise when my insurance renewal notice from GEICO actually quoted a $50 increase in my insurance rates. To me, this was a clear signal that it was time to switch companies.Typically, I score really high on brand loyalty. I tend to stick with a brand for as long as possible, unless they really mess up. This qualified as a major mess up. As a result, I started shopping for insurance quotes.Two companies that quoted me significantly lower rates (30%–40% lower) were Progressive and Allstate. Both had an optional programme that could give me further discounts based on my consenting to the companies tracking my driving habits. Now, I am a careful driver – I hardly ever accelerate hard. I hate using the brak…

Cornell Graduate Students United: At What Cost?

On Monday and Tuesday, we graduate students at Cornell will be voting on whether or not we want to unionise. Actually, scratch that, only graduate students who hold a TA, RA, or GRA appointment can unionise.This is a shitty arrangement, and I will be voting against it.For those of you who are not aware of how graduate school works at Cornell, you could be on one of many appointments.FellowshipA graduate student on a fellowship gets a stipend and tuition paid without associated teaching or research opportunities. Graduate students on a fellowship typically work towards their own theses, but will be excluded from the unionGraduate research assistantshipsA GRA gives a graduate student stipend and tuition without teaching responsibilities. However, this money comes out of a specific project grant, and the students typically work on their own theses. Students on GRAs magically qualify to join the union, whereas there is virtually no difference between a GRA and a fellowship for the most pa…

De-addicting

I’m on a process to break away from the distractions of social media, primarily Facebook, and spend the time to pursue other interests. This is an interesting experiment, and it has required significant dedication and effort on my part. At the end, though, I’m not certain if I’ll be successful.I realised that I had a problem when Facebook became the most visited sites in my browser. I should have been working, not scrolling through Facebook like a, well, you know what Jerry Seinfeld has to say. I further noticed that I would tend to log on to Facebook every time I was stuck at work, so that my capacity to tackle problems was reduced to only those that involved cracking a walnut shell. Anything more complex, and I would procrastinate and end up on Facebook.What I needed was a swift kick in the arse to get off Facebook and into the real world. It came through the means of my latest project which required all my attention. At this time, I logged out of Facebook from my work computer and …