| Recent Articles |
Oracle Flexes its Stake in i-Flex
Oracle announced that it plans to buy a majority stake in Indian application software
company, i-flex solutions. I-flex provides software for banking, asset management,
and investor services.
Looking For A Safe Investment? Try A Certificate
If you are looking for a safe investment and you have between $100 -$1,000 to
invest, you should consider a certificate of deposit or CD.
Chinese Blog to List on NASDAQ
China Economic Net has an article on a Chinese Blogge, Fang Xingdong, who is looking
at listing his blogging business on the NASDAQ.
The Nature of Penny Stocks
For anyone new to investing in penny stocks, you should first be made aware of
the differences between these micro-cap stocks and the more conventional blue-chip
and mid-cap investments.
Know More About Stock
You must have never heard of stocks in your life and investment strategies must
have sounded Greek to you.
|
|
08.03.05
Advice For International
Investors On How To Safeguard Their Profits
 By Gerron Woodruffe
What are the risks?
Today, investors are increasingly turning to global markets to find opportunities
for profit, giving urgency to the issue of protecting returns from foreign exchange
risk. While there are many excellent investment opportunities to be found all
over the world, volatility in the currency markets can and does affect the profitability
of these investments. An understanding of how currency rate movements can affect
profits can help investors protect their bottom line from this uncertainty.
A vivid example of how currency volatility can impact profits occurred in 2004.
When the US stock market rallied, investors from Europe converted their euros
into dollars and sent them to America to take advantage of these opportunities.
Even though there was a 30% gain in the US stock market that year, it was accompanied
by a 22% decline in the value of the dollar. Although the European investors had
earned substantial returns on their stock investments, their profits were reduced
considerably when converted back into euros because of the decline in the dollar.
Investors in other markets are also exposed to currency rate risk. When interest
rates increased in the UK, many investors sent capital from all over the world
to profit from these higher returns. However, at the same time, the price of the
US dollar versus the pound sterling was subject to great volatility -as much as
11% in 2004! Because of this, the amount those American investors took home varied
greatly depending on when they chose to convert their profits back into dollars.
Exchange rate risk can be a threat to
your profitability when investing abroad. While it is impossible to predict exactly
where the markets will go, you can protect yourself from this kind of volatility.
Read on to learn how easy it is to hedge against currency exchange risk by taking
a position in the spot foreign exchange market.
How to protect your profits
Protecting your investment profits by hedging in the spot currency market is simple
and inexpensive, and completely protects your account against currency market
volatility. Hedging entails taking a position in the market so that the effects
of foreign exchange movements are neutralized, and gives you the peace of knowing
that your profits are not vulnerable to movements in the currency market.
The principle of a hedge is simple. An investor who has invested his funds abroad
wants to make sure that he is protected if the currency of the country he has
invested in depreciates. Depreciation in the value of the foreign currency would
mean that he gets less of his home currency when he converts his profits. The
simplest way for an investor to avoid a loss like this is to sell the currency
of the country where he has invested in the spot currency market. If it depreciates
in value, he will profit from his spot position.
In an example taken from go currency.com
someone from the UK who is investing 300,000 pounds in the US wants to make sure
that when he takes his profits home, he is protected if the dollar gets weaker.
To do this, he would sell dollars in his trading account so that he profits if
it does get weaker. When he converts his investment funds back to pounds, his
gains in the currency market will cancel out any losses caused by exchange rate
volatility.
All hedging takes is a little foresight and a trading account. The total transaction
cost of a hedge is minimal-only $150 in the example above. Any losses of investment
capital are completely offset by gains in a currency trading account, making hedging
an inexpensive and very efficient way to protect against substantial risk.
About the Author:
Gerron Woodruffe is an affiliate of gocurrency.com. Go currency is a free online
currency rate converter. |
WebProWorld Marketing Forum
