Saving abroad

missile

As you have noted the exchange rate has dropped rapidly and if it continues to do so it will wipe out all interest gained and more. It is a risk and you may lose out.

VT82

CKhalvashi wrote: »

At the same time, £1 equalled about 6 GEL when I first came to the UK. This is no longer the case. You’re looking 2.4 GEL if you’re lucky. The same has obviously happened (although to a lower extent) with other currencies at the same time.

As missile says, and you alluded to, you'd be taking on a huge amount of currency risk if you invest in the Georgian currency and then expect to convert it back to sterling.

The difference between the high interest rate there and the low interest rate here means the market is pricing in a further drop in the exchange rate, otherwise people could borrow in sterling and invest in GEL to make (interest rate and currency) risk free arbitrage profits.

You could theoretically hedge the risk with a forward contract to sell GEL and buy GBP, but that would suck out all the profits of the high Georgian interest rate and leave you as if you were investing in this country, albeit maybe with a slight premium to reflect the increased credit risk you would be taking.

If you really can invest in sterling at those rates in your Georgian bank, then the above can be ignored, and there must indeed be a serious credit risk issue.

koru

missile wrote: »

As you have noted the exchange rate has dropped rapidly and if it continues to do so it will wipe out all interest gained and more. It is a risk and you may lose out.

He is saying that sterling has weakened against the Georgian currency over the last 20 years. £1000 converted into Georgian currency back then would, by now, be worth £2500 at current exchange rates, ignoring any interest earned in the meantime. (I have not checked these rates; I'm just interpreting the figures provided.)

I do, however, agree that investing in the Georgian currency would have the risk that it might weaken against sterling leading to exchange losses. Then again, the OP says he has a mortgage in Georgia, so perhaps there is a natural hedge.

However, this bank seems to be paying rates of 7 or 8% on sterling, US dollars and euros, so there's no exchange risk on this. But these rates would only be necessary for a bank that is obviously considered an extremely poor credit risk by the markets.

rexmedorum

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