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Compound interest – what it is, and why you want it on your side...

It’s been said that there are two types of people in the world: those who understand compound interest and those who are doomed to pay it. In this article we’ll investigate what that means and whether or not it’s actually true. First, we need a definition of compounding and compound interest. When your interest is compounded it means that it is added back to your original capital, from which point it then starts to earn interest itself. To clarify this, let’s take as example the unlikely scenario that you find a savings account paying 10% interest annually, in which you decide to invest £1,000. You might initially think that this means you will make £100 in interest per...

posted on: Sep 28, 2007 | author: Alex

An explanation of the carry trade

Those of you watching recent events in the financial markets might have seen the terms ‘carry trade’, ‘Yen carry trade’ and ‘YCT’ crop up a few times. This is often explained in the press as the process of borrowing money in a low-interest currency and investing it in high-interest one. Which is true, but there’s rather more to it than that and we have to step back a few years to find the full explanation. About 20 years ago Japan went through a period of property price inflation, a speculative bubble of investment driven by people who assumed that property prices only went up, particularly on a crowded island where there was little scope to build new homes (sound familiar?)....

posted on: Sep 1, 2007 | author: Alex