Banking - How to Gain Extra on your NRI Deposits

Declining Dollar
If a depositor thinks that Dollar is going to further decline in future. He can convert his FCNB Dollar deposits into NRE (Rupee) deposit. Both FCNB and NRE offer same facilities. Both are repatriable, tax free and can be converted into each other freely. When Dollar declines to a very low value, he can convert his deposit back to Dollar deposit. In this process he will gain extra Dollars in his account. An example will demonstrate it more clearly -
Year 2007
• A person is having FCNB deposit of US Dollar – 10,000
• He converts it into NRE (Rupee) deposit at present rate say - Rs 40 per Dollar
• He now holds NRE (Rupee) deposit of – 4,00,000
Year 2008
• At Present he holds NRE (Rupee) deposit of – 4, 00,000 + Interest
• Suppose now value of US Dollar is – Rs 36 per Dollar
• He converts it into Dollar deposit at this rate say - Rs 36 per Dollar
• He now has FCNB Dollar deposit of US Dollar – 11,111 + Interest
• His Gain is 1,111 Dollars (that is 11.11% gain Plus usual interest earned)

If Depositor thinks Dollar is going to Appreciate
He can use the reverse strategy, if he thinks that Dollar is going to appreciate in the future. In this case he can convert his NRE (Rupee) deposit to FCNB (Dollar) deposits.
Please note that we are neither predicting the future value of Dollar nor recommending any strategy in either case. Depositor has to take his own call.

Dollar Deposit with Forward Cover
FCNB (Dollar) deposit holder can enter Forward Contract with bank. Depositor earns forward premium plus normal interest also.
Depositor makes one year FCNB (Dollar) deposit.
He also applies for a forward contract with bank (charges around 900 Rs).
He earns Forward Premium say 1.5% to 2%
He also gets usual interest.
He will get maturity proceeds in Rupees, which can be converted back to Dollars.