Comparison and Importance of Financing Costs Last week, my life insurance finally got approved. I leveraged $380,000 to secure a $10 million leverage. Of course, today’s focus isn’t on the insurance itself but rather on the currency I used for the leverage—Swiss Francs. First off, many of you are already familiar with carry trades in fiat currencies, especially the Japanese Yen, which is a hot topic for many. The Yen’s interest rate hikes could even trigger increased volatility in global assets. But there’s another fiat currency with even lower financing costs than the Yen: the Swiss Franc. I’m not going to dive into carry trades here, just a simple example to illustrate. If I borrow $1 million, let’s compare the costs of borrowing in Yen, Swiss Francs, and USD. For simplicity, let’s assume the bank offers the following effective annual interest rates: A. USD: 4.5% B. Yen: 2% C. Swiss Franc: 1% 1. If I directly borrow $1 million in USD, the annual interest would be about $45,000. 2. If I borrow the equivalent of $1 million in Yen, the annual interest would be about $20,000—$25,000 less than USD. 3. If I borrow the equivalent of $1 million in Swiss Francs, the annual interest would be about $10,000—$35,000 less than USD. So, for a loan that lasts many years, the difference in financing currency can be significant. $1 million per year saves $35,000; for $10 million, that’s $350,000. If the loan lasts for ten years, even without compounding, the cost difference is massive. Borrowing low-interest-rate currencies and converting the funds into USD to purchase higher-yield bonds, stocks, insurance, or other assets can turn the interest rate spread into part of your leveraged returns—as long as the asset yield consistently exceeds the financing cost. Of course, cheap money doesn’t come without risks. Borrowing in Yen means you owe Yen, and borrowing in Swiss Francs means you owe Swiss Francs. Let’s go back to the $1 million example. A Yen loan saves $25,000 annually compared to USD, which is equivalent to 2.5% of the principal. If the Yen appreciates against the USD by more than about 2.5% in a year, the saved interest would essentially be offset by the exchange rate loss. A Swiss Franc loan saves $35,000 annually, but if the Swiss Franc appreciates by around 3.5% against the USD, the financing advantage for the year would also be wiped out. But the reverse is also true. If the Swiss Franc depreciates by 5% after borrowing, not only would you save $35,000 in interest for the year, but the original $1 million equivalent in Swiss Franc principal would also become cheaper when converted back to USD. Of course, the Swiss National Bank has long prioritized preventing excessive appreciation of the Swiss Franc and will intervene in the forex market if necessary. This somewhat reduces the risk of a sudden sharp appreciation of the Swiss Franc. That’s also why Swiss Francs are currently the recommended currency for leveraging. @Gate Crypto, US stocks, Hong Kong stocks, Korean stocks, gold, CFDs, prediction markets—all in one platform!