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 !!!