Banking Mtg. Rates and Biz loans...why are int. Rates so high...

Portofino

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Jun 29, 2003
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in the DR. Can someone explain the fundamentals of how and why, and why isn't it like in the US.
 

BushBaby

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Portofino.
Take a look at the interest rates Banco Central are offering to investors - 36% pa for a 90 day CD!!!!
The SIMPLE answer to your 'Finance" question is ...........
Invest here & get Rich - Borrow here & get POOR!!!!

In answer to your question about why are things here NOT like in the States - Try looking at the Dominican Culture. In many ways the Dominican Republic is so much "richer", because the people are the way they are. It works for them & they are sufficiently happy to not complain & try to get things changed.

God Bless them!!! - Grahame.
 

DCfred

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Jun 19, 2003
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Money is a commodity with a limited supply. The Dominican government rather than cutting its spending is resorting to printing money, thus the 60% devaluation of the currency, and now to issuing Central Bank instruments that offer a better yield than commercial banks. The short of it, the government is competing with the private sector for money. In the US same principles apply. Back in the late seventies we had the problem of high inflation and high interest rates, mostly due to the oil shock of the 70s and the cost of the Vietnam war.
 

jojocho

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Jul 10, 2002
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In the financial world investments with higher risks associated to them always have a higher expected rate of return, otherwise people wouldn't take the risk.

Investing in the Dominican Republic is MUCH riskier than investing in the US, thus the difference in interest rates.

Of course, you should also start accounting for all of the changes that the Central Bank is implementing in an effort to put a stop to the devaluation of the peso.
 

Formosano2000

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Mar 5, 2003
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High Return = Righ Risk

jojocho said:
In the financial world investments with higher risks associated to them always have a higher expected rate of return, otherwise people wouldn't take the risk.

Investing in the Dominican Republic is MUCH riskier than investing in the US, thus the difference in interest rates.

Of course, you should also start accounting for all of the changes that the Central Bank is implementing in an effort to put a stop to the devaluation of the peso.


I wonder where Banco Central will get its money to pay for all the interets on the 20 billion RD$ certificates when due.

The purpose for certificate issuance is supposed to reduce RD$ supply in the market, thereby (trying) to stabalize the exchange rate. But once those money come on stream at maturity, imagine what's going to happen !

The BC can either:

1. secretly print money to pay for interests

2. Force people to roll over their certificates, thus postponing their headaches for another 90-180 days.

Now, if they take option No. 1, inflation is going to shoot up and RD$ will plunge again against US$

If they take option No. 2, they can time the "certificate bombs" to explode after May/2004 election date.

So if His Baldness wins, all hell can break loose because he won't care anymore. He is in for another 4 years !!

If anybody else wins, they will be left with the thankless task to pick up the tab and clean up the mess.

So either way, the current administration has nothing to lose.

And either way, the DR as a whole loses big time !!! :mad:
 

bochinche

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Jun 19, 2003
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Re: High Return = Righ Risk

..... And either way, the DR as a whole loses big time !!!....

agree totally, but i'm secretly hoping the government will go for option number two...... postpone, postpone, postpone and then eventually not pay anything at all.

...of course, i would hope differently if i had some of those certificates.
 

Texas Bill

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:bandit: :bandit: :bandit:

bochinche? no, Portofino!!

does the above answer your question? The banks are like any other business. They're in the running to make money. Many, many banks in many, many countries have the same philosophy of charging interest rates which would be, by law, usurous in the USA. Also, the propensity for Dominicans to try immulating the rich has a great deal to do with the rates in that there is a great deal of repossession of collateral taking place. Much like the high bankruptcy rate in the USA in the 70's.

Texas Bill
 
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