But as investors borrowed in low-interest currencies, such as the yen, to invest in high-yielding ones, this made the latter currencies stronger.
That made Iceland a prime target for the "carry trade": borrowing in low-interest currencies to invest in higher-yielding ones.
Russian rates remain too low to attract inflows from carry trades, where investors borrow in low-interest currencies and seek a yield advantage by investing in currencies offering a higher return, economists say.
The country's banking system had grown rapidly through easy access to cheap foreign funding, while the currency became sharply overvalued as high domestic interest rates made the Icelandic krona popular in the so-called carry-trade (borrowing in low-interest currencies to invest in high-yielding markets).
Profits can also be made if the high interest rate currency strengthens relative to the low interest rate currency.
One longstanding approach to investing in currencies is known as a "carry trade": when an investor borrows money in a low interest rate currency and invests in a high interest rate currency, while trying to catch the difference between the rates as a profit.
In the foreign-exchange version of the carry trade, an investor receives an income by borrowing a low interest rate currency and owning a higher-yielding one.
Instead short-term nominal interest-rate differentials have persistently reinforced currency movements; traders would borrow money in a currency with low interest rates, and invest the proceeds in a currency with high rates, earning a spread (the carry) in the process.
Among the risers RSA Insurance is up 8.6p at 426.6p as the company reported a 1% year on year rise in first quarter net premiums, offsetting the impact of low interest rates and adverse currency movements.
Much of this savings has been by the corporate sector, which is subsidized by the government in all sorts of ways (an undervalued currency, low interest rates, cheap energy).
