And it is much more interesting when considering the level of typical leverage of these operations (that is, the level of indebtedness on own capital involved in the operation), the return on investment is multiplied. This situation is currently mainly affecting the Brazilian economy, which, given its monetary policy of inflation targeting, finds certain limitations to act. And here there is another element in favour of speculators: the flow of capital entering Brazil pressuring appreciation exchange rate thus increasing the return on investment in their original currency. Thus, the devaluation risk of the currency in which is invested, which represents a threat against the margin of profitability, is located at minimum levels. Chile is also suffering the action of speculators who use the Chilean peso as a funding currency. Gonzalo Jara, Manager of making Santander Chile market at iProfesional: have a phenomenon of carry trade which plays in favour of the dollar. Large hedge funds used to the Chilean peso as a funding currency, because the financing to buy U.S.
currency turns out to be the cheapest in Latin America. Something paradoxical that I found for the Argentina is that it is sheltered from the threat of the carry trade thanks to the instability and unpredictability of its economy. Yes, it is strange, but I must say that doing things badly, it also has its benefits. Speculators are kept away from Argentina since despite their high interest rates, exchange-rate instability, inter alia, implies a high risk are not prepared to assume. The speculative activity has affected the value of the Brazilian real and the Chilean peso.
Earlier this year, the dollar in Brazil was trading at 2,313 reais and Chile to $638,16. Currently, the American currency makes it to R $ 1.839 in Brazil and $547,35 in Chile. The carry trade is beating squarely on the competitiveness of these economies, affecting mainly to the Chilean economy whose exports account for approximately 32% of its GDP.