I placed S$50,000 in Chinese Yuan offshore (CNH) time deposit on 12 March 2012. The bank quoted me a currency sell rate1 of 0.2024 then (1 CNH = S$0.2024). I got CNH 247,035.57 for one-year deposit at 2.1% interest.
For 3 years, I rolled over this fixed deposit with interest income earned (in CNH) added to the original principal sum. The fixed deposit interest rates varied from 2.1% to 1.825% p.a.
I returned the CNH fixed deposit back to the bank recently after three years and the details of transaction were:
Final total amount = CNH 271,743.26 (interests added)
The CNH buy rate quoted by the bank was 1 CNH = S$0.2163
Total amount received in S$ = S$58,802
CNH against S$ had appreciated since 2012 by about 6.8%.
From S$50,000 to S$58,802 after three years, the computed interest rate per year is 5.55%. This was a good return considering that CNH appreciated against S$. The story could be different if CNH declined below the rate set three years ago. (Just like my experience with the Aussie dollar. That is another story for another day. Aussie dollar traded below parity against S$ today!)
Note: 1 The bank has a sell rate and a buy rate for each foreign currency. The bank earns on the spread between these two rates. For example, the bank sells CNH at S$0.203357 but buy back CNH at lower rate of S$0.196557.
Copyright © 2015, limkimtong for Living Investment
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