Interest Rate Arbitrage

Arbitrage, within the context of financial markets, refers to the practice of trading on, and profiting from, a current or expected inconsistency in the pricing of an asset or group of assets. It is, in precise terms, leveraging on the difference between the price or the value of a security in two markets.

Considering the continuous rise of the US $ as compared to INR, Interest Rate Arbitrage is becoming one of the most potent tools used by HNIs, FIIs and NRIs to milk the interest rate difference between the US emerging markets like India

The rising dollar rate versus the rupee has created a lot of arbitraging opportunities. NRIs remit more to earn extra buck for their hard earned money. The basic fundamental here is to borrow money in dollars and lend the same in Indian rupees to gain from the difference in interest rates. The larger the difference, the possibility of earning may be higher.

The FCNR rate for NRI deposits has increased by 125 basis points (Libor+125 basis points) effective from November 23, 2011, thus encouraging NRIs to open deposits in India.

With domestic interest rates hardening even as fixed income returns fall globally , there is a sudden spurt in remittances from non-resident Indians (NRIs) seeking to arbitrage between local and international rates. Indians are borrowing overseas at low rates and are remitting funds in India for investments. As on June 30, total NRI deposits on various banks was pegged at $53 billion. With the rupee depreciating over 18% in the last six months, non-residents are getting more for the dollar than ever before

Are you looking at Transferring money? What should you look for?

India recorded US$ 55 billion as remittances received and stood as the No. 1 country in 2010, as per a recent World Bank Report.

This can be attributed to the increasing emigrants’ population from India that has seen a steady increase. The rise in remittances has encouraged a lot of companies specially banks to offer remittance services. However, with intense competition there are various factors you as a customer need to be aware of while transacting money.

Undoubtedly rates are important to gain the maximum value, however factors such as Trust, Convenience, Safety, transaction charges and time taken are also important. One should also keep in mind charges such as commissions, transfer fees, service fees and others.

One of the fastest growing money transfer option that is catching on is ‘Online Money Transfer’. It offers the convenience of time along with lower transaction fees. And their rates are most competitive.

Factors that will influence your choice of selecting money transfer mode.

  • Trust
  • Convenience
  • Exchange rate
  • Customer Support
  • Security
  • Speed / Times Taken

The above elements are hygiene factors these days while you consider a money transfer mode.

You should also look out for options that save you money. While transferring money, do not opt for faster modes if the money transfer is not critical or urgent as it is the most expensive. Also it disallows large sums of transfer in one single transaction.

While using your agent / branch be aware of the hidden charges and exchange rate offered. Seek transparency of charges and time taken.

Online Money Transfer services such as Remit2India are a one-stop solution for all your money transfer needs. You can send money from 23 countries and gain benefit of most competitive exchange rates, zero transaction fees, 24×7 customer service and above all peace of mind. So be assured that all your money transfer worries are put to rest.

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Importance of Remittances

Remittances contribute to the financial and social inclusion of needy people worldwide and to the economic growth of a country. They also play an important role during financial crises. The recent World Bank report on remittances is a testimony to the fact that remittances flows have remained more resilient as compared to private debt and equity flows and foreign direct investment.

Remittances are stable and may even tend to be counter-cyclical in times of economic hardship. Remittances are now more than double the size of net official flows and are second only to foreign direct investment as a source of external finance for developing countries. In 36 out of 153 developing countries, remittances are larger than all capital flows, public and private.

Remittances could also help in reducing poverty, as it could be the poor who migrate and send money to their families. Some may argue that it is actually the rich who can migrate and send back remittances. Remittances could also be used to promote literacy. Studies show that the school dropout rate is lower and enrollment rate is higher in households that receive remittances.

There is tremendous potential for using remittances to encourage development in countries. Remittances could increase when the home country’s economy is going through a patchy phase. During such times, an individual might prefer to remit more to aid his family’s consumption back home. The money sent home could also be used to promote economic growth, increased investment and community development.

Factors driving remittances into India

In our last article (Migration and Remittances: An ecosystem that co-exist), we explored the understanding between two factors, migration and remittance. In this article, we take a look at the factors that could play a major role in influencing remittances into India.

In recent times, an increase in remittances to India can primarily be attributed to many reasons. According to policy experts, factors responsible for the growth in remittances include the role of various channels to remit wealth, shifting emigration pattern to highly skilled intensive operations, greater competition in the money transfer market and the extent of economic activity in the source country. The most significant factor in the surge of remittances, ultimately, may be the way NRIs perceive the Indian economy. Though the liberalization of the Indian economy in 1991 was a clear benchmark, its real significance has taken time to crystallize. Indian economy has been witnessing an incremental growth since the last decade. Commensurate with the increase in the number of migrants from India, remittances have been growing since the past decade. * Perhaps the most crucial factor in the remittance market is a sound macro economy and a good investment environment. Migrants will remit more and might also prefer to invest remittances in activities with a substantial multiplier effect.

Thus, a positive investment climate could also be one of the key factors for driving remittances into India. With increasing incentives and tax exemptions coupled with liberalized foreign exchange controls, remittances might just continue to grow.

* Migration and Remittances Factbook 2011


India- An Investment Destination

Sixty years young India, and having a GDP that is touching 9%, is considered to be tomorrow’s economic superpower. With all its companies doing decently well, the Indian Share Market has become a hot and favorite destination of global investors. Liberal economic policies coupled with an ever-growing GDP are factors enticing potential investors to India.

But these factors are certainly not the only factors responsible for the sudden boom in the number of NRI investors in the Share Market of India. There are other factors as well that has given immensely colossal reasons to NRIs to commence investing in India. Here are some of the other factors, which are worthwhile for NRIs to consider investing in India.

India is synonymous with the word “resilience”. The people are pliant in catastrophe and so is the Indian market. While the world was contemplating the US Market, India, after initial jitters, was back on her feet soon. Investors are still flocking in this growing market. The resilience is mirrored in the fact that post liberalization; the economic magnification rate has reached new heights. Moreover, as India is ascending the growth ladder, we hope and expect the economy to perform even better.

The two sectors that were somewhat left unattended were those of agriculture and infrastructure. But there is a good news. For about two-three years now, these sectors have been given their due recognition. Paying more attention to these two fields implicatively insinuates increase in production and consequently, consumption. This will conspicuously lead to better standard of living and higher income levels for the Indian masses, which eventually would lead to more investments for more money to be made.

India not only has manpower quantitatively but also qualitatively. English is the dominant language in prime cities, and the engineering/technological educational institutions are providing India (and the world at large) with specialists in varied fields. So next time the ‘WHY’ comes in your mind, do ingest these reasons to put your money to work.


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Very comfortable with Remit2India

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I will be frank and say my first experience with Remit2India was not perfect. But when I carefully reviewed and spoke to the sales person, I understood the issue was a misunderstanding and it was sorted out. Since then I’m very comfortable with Remit2India’s money transfer to my NRE account in ICICI.

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Remit2India – Once again thanks

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Dear Sir, Thanks for you immediate help. The money is transferred to my Indian account. Once again thanks for replying.

Remit2india – New services are helpful to us NRIs

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I had bought property in Bangalore and my bank was not allowing me to transfer huge amount for the payment. Thanks to Google I found Remit2india and they let me complete the wire transfer smoothly. I am happy these new services are helpful to us NRIs.

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