Currency swap is one of the most attractive opportunities to participate in the Russian financial market.
Over the past few months, foreigners have increased the number of transactions on currency swaps (purchase of rubles secured by foreign currency) – this means that this financial instrument is one of the most relevant ways to enter the Russian financial market. In October, foreign investors placed rubles using swaps. At some point, the size of swaps exceeded the historical maximum and amounted to $ 30 billion.
The interest of foreign investors in the currency swap market is fueled by an increase in the difference in interest rates against the background of an increase in the Central Bank’s key rate, as well as the desire of credit institutions to place foreign currency liquidity generated by large currency earnings by exporters. The difference in the interest rates of currencies allows a non-resident to make a profit by buying the ruble and selling it later at a higher rate.
In October, the largest banks sold the currency for rubles for 236 billion rubles on the exchange and over-the-counter market. Foreign citizens purchased rubles for 190.4 billion rubles, and subsidiaries of foreign banks – for 57.5 billion rubles. In September, the volume of purchase and sale transactions was even greater – banks placed currency for 403 billion rubles, and foreigners purchased 428 billion rubles.
Also, foreigners and subsidiaries of foreign banks increased the volume of purchases of foreign currency on the stock exchange: in October they bought 93 billion rubles, in September 18 billion rubles. This moment can be explained by the conversion of rubles after the sale of Russian shares. Since the beginning of 2021, foreign investors have sold $4.5 billion worth of Russian shares and bought $23 billion worth of foreign currency.
On the one hand, the participation of foreigners in the foreign exchange market creates risks of their further sharp outflow since most transactions are of a short-term nature. On the other hand, Russian credit institutions provide foreigners with their accumulated foreign currency liquidity, acquired from exporters. At the same time, banks receive rubles to manage liquidity. If foreigners did not actively participate in transactions for the purchase and sale of foreign currency, Russian financial and credit institutions could feel a shortage of foreign currency and ruble liquidity.
The increased demand for foreign currency confirms the popularity of the investment strategy – carry trade, whose meaning is to obtain borrowed funds in the currencies of developed countries, where interest rates are lower, and further invest them in higher-yielding instruments, including currencies, of countries with developing economies.
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