Returns on Australian Dollar Term Deposit ( Part 2)

The australian dollar does not reach parity with the singapore dollar till 6 Oct 2008

6 Oct 2008

FV = 55138.25 (1 + 0.045)^(6)
FV = AUD $71804.34

On 6 Oct 2008, the AUD vs SGD had an exchange rate of 0.9423. So,

Capital Invested
SGD $10000 = AUD $10612.33

Total investment now = $71804.34 + $10612.33 = $82416.67

The current AUD vs SGD rate is 1.2317 (25/12/09), after coming off the high of 1.2987 (17/11/09). Let us now calculate how much our total gains would be up till this point.

25 Dec 2009

i am taking the interest rate to be 3%, since Oct 2008.
FV = 82416.67 (1 + 0.030)^(1)
FV = AUD $84889.17

Converting to SGD: AUD $84889.17 * 1.2317 = $104557.99

Total Amount invested in 10 years: SGD 10000 * 6 = SGD $60000
Profit: SGD $104557.99 - 60000 = 44557.99

We have made a profit of 44557.99 over 10 years.

Points to take note

• I have used a very conservative average of 4.5% in reality it is more likely to be around 5-5.5%.

• All figure have been rounded to 2 decimal places.

• The profit show above is the worst case scenario.
  

• Most banks usually have a better 6-month interest rate than i have used. As they find it easier to hedge their position as compared to a 12 month period
  

• The reader needs to understand that although investing in the S&P or STI would give better annual compounded rate of return. There is also more risks involved.  
  

• If the reader is a more sophisticated investor with knowledge of technical analysis, he/she can deposit in a more optimum position.

• Another point to take note is that gains in fixed deposits are not taxable and there is no cost involved in opening an account. Banks would only require a fee if you withdraw the deposit before the term ends.

If you are wondering, "Why dont i put in a lump sum of $100,000 for one deposit?". The answer is yes that would be more ideal, however i have taken into consideration that not everyone has $100,000 in cash.

In my next post i will include a more optimum return of the basic method. Happy Holidays!!!