Where to invest to make more profit?

Earlier this week, the central bank launched its three-pronged package to collect stray capital and overcome recent currency turmoil. We will now look at this report to see which one of these three options is likely to be more profitable.

The recent currency turmoil has finally prompted the central bank to react and launch a package with three different options to calm the foreign exchange market and collect stray capital from the beginning of this week.

The first option of this package was related to publishing a Rial deposit certificate. According to this option, from February 17, 2018, the banking network will receive people’s funds for two weeks, and it will give them a 20% interest rate after one year. If a person wants to cancel before one year, 14% interest will be given to the person. The bonds of this option are at least one hundred million Rials.

The second option was to issue a Rial deposit certificate based on currency. According to this option, the country’s banking network receives people’s capital and opens foreign currency deposits. The rate of Rials calculated at the time of opening the average deposit certificate will be one month before the Sana system and the interest rate for one and two-year maturities will be 4 and 4.5 percent, respectively, and at maturity, the currency or its equivalent in Rials will be paid to the bondholder in the average rate of one week before the Sana system. If the person wants to cancel before maturity, the interest on the short-term deposit in Rials (10%) will be paid to the bondholder.

The third option was to pre-sell Bahar Azadi coins. Under this option, the central bank receives capital and sells coins to the person instead. The maturity of these coins is one year and six months. If a person chooses a one-year maturity, the price of a coin will be 13 million Rials, and if he chooses six months, the price of a coin will be 14 million Rials.

Now we want to answer the question, according to the assumptions we are considering, which option is more profitable than the other options?

Hypotheses to answer this question are:

The first assumption is that the exchange rate trend is the same and according to the forecasts and the recent trend, the dollar rate of the Sana system is about 5 thousand tomans after one year and the free market dollar rate is 5200 tomans.

The second assumption is that the rate of the Bahar Azadi coin will not change much next year, and if it changes, its official rate will be around one million and 600 thousand tomans.

The third assumption is that the person has 10 million tomans of capital to invest.

The fourth assumption is that this person should consider a one-year period for investing.

Where do you deposit your capital to get more profit?

Let’s start with the first option. If a person invests 10 million Tomans in the first option, his deposit will be around 12 million Tomans after one year with a 20% interest rate, and the person will receive a profit of 2 million Tomans. If he cancels before the maturity of one year, his 10 million Tomans will be about 11 million and 400 thousand Tomans with a 14% interest rate, and this person will receive a profit of about 1 million 400 thousand Tomans.

If a person invests 10 million tomans in the second option. Considering that the average rate of the Sana system is currently 4600 Tomans, a person will be awarded 2174 dollars. After one year, a person is free to convert his dollars in Rials in the central bank and receive an interest rate of 4%, or receive dollars from the central bank and sell these dollars in the open market, and also receive a 4% profit from the central bank.

In the first case, it is anticipated that the average rate of the dollar, one week before the Sana system to be about 5,000 Tomans at the time of maturity. Therefore, a person converts $ 2,174 at the rate of 5,000 Tomans after one year regardless of the 4% interest rate and receives 10 million and 870 thousand Tomans. That is, by converting his dollars to Rials in the Central Bank, he/she will receive a profit of about 870 thousand Tomans. Now, the profit of 4% and 10 million Tomans will be about 400 thousand Tomans in this one year. Therefore, the person will receive a total profit of one million and 270 thousand tomans from the second option and the first case. If a person receives only 4% interest and demands his money in dollars from the Central Bank and wants to convert the dollar in the open market, he will receive the same amount of 400,000 Tomans from his 4% interest and $ 2174 from the conversion in Free market (it is predicted that after one year, the dollar rate in the free market will be 5200 Tomans) and he/she will earn about 1 million and 305 thousand Tomans. A total of 1 million and 705 thousand tomans will be given to the individual.

If a person wants to buy a 10 million Toman coin with a one-year forward sale. Considering that the forward sale of a one-year coin is one million and 300 thousand tomans, this person can buy approximately 8 coins. If according to the forecasts, after one year, the price of the coin is one million and 600 thousand tomans, the profit of each coin will be 300 thousand tomans and a total of two million and 400 thousand tomans.

According to the above calculations and analyzes, the best option is to buy a one-year coin, because in this case, the person will receive a profit of two million 400 thousand tomans. After that, the highest interest belongs to Rial deposits with an interest rate of 20%.

It is worth mentioning that all the above calculations have been done with assumptions. In the next year, exchange rates and coins may be different from what we assume here.