Thursday, October 09, 2008

A Carry Trade?

UK local councils have exposure to Icelandic banks. Why? High interest rates. Why?

The Telegraph

However they are also encouraged to look for banks promising high interest rates, which is why nearly £1billion has been trapped in the Icelandic banks

Icelandic banks were presumably prepared to pay more for UK deposits because they could convert it to ISK and lend it out for a much higher rate. This is the money that fueled the purchase of UK assets like....West Ham United (now frozen?).

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