Not for those who need US dollar liquidity !!
ecarignan said:
To all of you investors,
With the issuance of 32-36% certificates fromthe Central Bank, is now a good time for a north american with extra US$ to invest or are we expecting more decline of the peso between now and the next future.
Can one convert a sum of money to pesos, buy a certificate, cash back at the end of the term and convert back to US$? Does that make any sense.
Anybody think that they will issue another one because this one is pretty much gone or will be by friday or monday?
Thanks,
ecarignan
Before you even think about exchaning your hard-earned US$,
let's do some number-crunching here.
Fact: Banco Central rates are 32% for 30-days, 34% for 60-days and 36% for 90-day CD's.
Fact: US$1=RD$35 (today)
For ease of comparison, let's say you put in RD$10,000 (today's US$285.71) into each CD category
so:
31 days from now, you'll have $10,000 x (1 + 32% x (30/365) ) = RD$10,263 on your 30-day CD.
(you are basically getting a 2.67% return)
61 days from now, you'll have $10,000 x (1 + 34% x (60/365))
= RD$10,559 on your 60-day CD
(you are basically getting a 5.60% return)
91 days from now, you'll have $10,000 x (1 + 36% x (90/365))
= RD$10,888 on your 90-day CD
(you are basically getting a 8.88% return)
Let's take the 90-day 8.88% as a bench mark.
If peso slides 8.88% 91 days from now, it will be at US$1= RD$38.08
This means that if the exchange rate on October/24/2003 is US$1 > RD$38.08, you are basically losing money when you convert back to US$. And if US$1= RD$50 by then, you will have actually lost almost 25% of your US$ principal upon conversion.
(at US$1=RD$50, the RD$10,888 you get back are worth only US$217,76, which is only 76% of the US$285.71 you originally started with)
For anybody who earns in RD$, spends in RD$ and have no access to US$, these CD's might prove to be a good idea as a 8.88% hedge against inflation. But in the long run, if the RD$ keeps depreciating, that 8.88% will easily be wiped out and some by rampant inflation because DR is overly reliant on imports.