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I wonder if there's a way around this: instead of an explicit interest or profit, make it a trade-based market: I'll give you X dollars-today, in exchange for
by icky 18y ago
I wonder if there's a way around this: instead of an explicit interest or profit, make it a trade-based market:
I'll give you X dollars-today, in exchange for 1.1X dollars-N-months-from-now.
Or I'll give you X dollars-in-a-month in exchange for Y Euros-today.
Does the SEC regulate currency trading markets?
And, if not, why can't dollars-today and dollars-6-months-from-now be traded as separate currencies [taking into account expected inflation/deflation, as well as the time-value of money]?
- aneesh 18y ago"I'll give you X dollars-today, in exchange for 1.1X dollars-N-months-from-now." Isn't that the very definition of interest?
- fugue88 18y agoThat's called simple interest, as opposed to compounding interest.
- icky 18y agoNo, interest usually compounds. This is more like a one-off currency trade of now-dollars versus future-dollars.
- aneesh 18y agoStill, you are giving some amount of today's dollars in return for a larger amount of tomorrow's dollars. That implies some effective interest rate over that time period. Also, while most financial institutions use compound interest, the concept of simple interest also exists. Am I missing something?
- dangoldin 18y agoThis thread reminds me of Islamic laws dealing with interest. Since you can't charge interest, the solution is to go into a trade like transaction. http://en.wikipedia.org/wiki/Islamic_banking#Modern_Islamic_banking http://en.wikipedia.org/wiki/Islamic_banking#Modern_Islamic_... So even if charging interest is forbidden in one way, there are ways to circumvent that.
- ig1 18y agoThey can and are. They're called "FX forwards", and what's more the technique you described is exactly the one the Medici family used to make their fortune (avoiding the usuary laws of the time). However it doesn't work if you can't guarantee a fixed rate of interest (as in this case).