Dear Mr Tan,
A RADICALLY new type of credit card with no minimum income requirement and just $500 in credit has arrived in Singapore. Is this radical or ridiculous?
The Straits Times cartoon depict something is real and can be quite an issue as students start to live on credit and interest roll over.
Should this be encouraged? Will holding such a credit card be then a trend among the students? Should we start to allow our children to start living on credit at such a young age?
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REPLY:
It is convenient to use a credit card for payments. Students need this convenient mode of payment as well. Otherwise, they will have to incur a high cost to pay by cash.
We can educate the student to pay on time, and avoid the interest charges. They should not live on credit.
It is better for the student to apply for a debit card to use the convenience of making payment. It does not involve any credit. The money is deducted immediately from your bank account.
Some banks are willing to waive the annual fee for the debit card for the first 1, 2 or more years (subject to conditions).
Wednesday, July 18, 2007
Singapore Dollar and the Carry Trade
The Japanese Yen has been the funding currency for the carry trade for many years. Due to the low interest rate in Japan, many people borrowed money in Yen to invest in higher returns from overseas assets. The Japanese savers also sent their money to invest overseas.
The carry trade has caused the Japanese Yen to weaken considerably against the other currencies. It weakened by more than 15% against the Euro, Australian and New Zealand currency during the past year.
Apart from the Japanese Yen, another currency used to fund the carry trade was the Taiwan dollar, due to its low interest rate. Recently, the authority increased the interest rate to reduce the outflow of funds.
There is a news report in Bloomberg that some people are now looking at the Singapore dollar as the next funding vehicle for the carry trade. This is due to the low interest rate in Singapore.
The impact of the carry trade has been the weakening of the funding currency. As more people invest overseas to earn a higher interest rate, the funding currency is expected to weakened.
But an expert told me that the impact on the Singapore Dollar is likely to be small, as the bulk of currency flows is due to real trade (like our paying for imports of goods and foreigners paying for exports).
The carry trade has caused the Japanese Yen to weaken considerably against the other currencies. It weakened by more than 15% against the Euro, Australian and New Zealand currency during the past year.
Apart from the Japanese Yen, another currency used to fund the carry trade was the Taiwan dollar, due to its low interest rate. Recently, the authority increased the interest rate to reduce the outflow of funds.
There is a news report in Bloomberg that some people are now looking at the Singapore dollar as the next funding vehicle for the carry trade. This is due to the low interest rate in Singapore.
The impact of the carry trade has been the weakening of the funding currency. As more people invest overseas to earn a higher interest rate, the funding currency is expected to weakened.
But an expert told me that the impact on the Singapore Dollar is likely to be small, as the bulk of currency flows is due to real trade (like our paying for imports of goods and foreigners paying for exports).
Sub-prime mortgages in America
Sub-prime mortgages are sold to people of lower credit standing, or offer additional financing beyond the prudent limit.
Many borrowers are not able to pay the interest on these loans or the principal installments. There is a high default rate.
Many borrowers were not given proper advice on the financial impact of the loans. They were not told about the actual payments that have to be made, and their ability to afford these payments.
The Federal Reserve Board has acknowledged that this problem is within their responsibility. They are taking the following steps:
* set standards for the lenders
* require proper disclose of the terms to the borrowers
* make sure that the terms are in language that the layman can understand.
Lesson: We need a similar approach for the financial service sector in Singapore.
Many borrowers are not able to pay the interest on these loans or the principal installments. There is a high default rate.
Many borrowers were not given proper advice on the financial impact of the loans. They were not told about the actual payments that have to be made, and their ability to afford these payments.
The Federal Reserve Board has acknowledged that this problem is within their responsibility. They are taking the following steps:
* set standards for the lenders
* require proper disclose of the terms to the borrowers
* make sure that the terms are in language that the layman can understand.
Lesson: We need a similar approach for the financial service sector in Singapore.
Good financial products
I wish to identify certain insurance and financial products that give good value to cusomers. They have to meet the following criteria:
* transparent
* easy to understand
* have reasonable charges
* easy to withdraw (with fair charges)
* easy to compare with similar products in the market
If the product issuer can provide the facts, I shall be able to make an assessment and recommend the product in my blog.
I am in favour of the following products:
* exchange traded fund
* low cost, well diversified fund
* government securities
* highly rated corporate bonds
* fixed deposits
* term insurance
Each product should earns a fair return that is commensurate with the risk.
* transparent
* easy to understand
* have reasonable charges
* easy to withdraw (with fair charges)
* easy to compare with similar products in the market
If the product issuer can provide the facts, I shall be able to make an assessment and recommend the product in my blog.
I am in favour of the following products:
* exchange traded fund
* low cost, well diversified fund
* government securities
* highly rated corporate bonds
* fixed deposits
* term insurance
Each product should earns a fair return that is commensurate with the risk.
Structured products in America
I was told that structured products are not sold to retail investors in America.
Why?
I do not know the reason. I suspect that the structured products that are unfair to consumers will probably be challenged by consumer advocates in America.
Individuals who wish to speculate in movements of stocks, currencies and indices can trade in futures and options. The cost of trading is relatively low and the terms are more transparent.
Why?
I do not know the reason. I suspect that the structured products that are unfair to consumers will probably be challenged by consumer advocates in America.
Individuals who wish to speculate in movements of stocks, currencies and indices can trade in futures and options. The cost of trading is relatively low and the terms are more transparent.
Customer-friendly Call Center
What is a customer-friend call center?
It meets the following criteria:
* answers your call immediately
* by a person (not a machine)
* gives you the answer immediately to simple questions (represents the bulk of cases)
* for a complicated matter, get the relevant expert to call you back
The call centers of most large organisations are NOT customer friendly:
* they ask you to press many buttons
* they ask you to navigate through many options
* the customer usually gets lost on the way
* mostly, a frustrating experience.
It meets the following criteria:
* answers your call immediately
* by a person (not a machine)
* gives you the answer immediately to simple questions (represents the bulk of cases)
* for a complicated matter, get the relevant expert to call you back
The call centers of most large organisations are NOT customer friendly:
* they ask you to press many buttons
* they ask you to navigate through many options
* the customer usually gets lost on the way
* mostly, a frustrating experience.
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