Risk Of Investments In Not Dollar Currencies Part 1

By in Intro to Forex on October 15, 2020

Though the American investors insistently aren’t recommended to rely on the domestic market, any investments into not dollar currencies are connected with currency risks. Nevertheless, the given risks give in to management and even can create perspective possibilities.

The integral diversification is to but on heavy price.

The positive aspect of foreign investments consists in that they constitute important, and sometimes and an integral part of a diversification of a portfolio. However realization of foreign investments doesn’t mean that the investor speculates on the Stock Exchange with foreign exchanges though the risk can be great enough. Nevertheless, the low US dollar exchange rate for certain will at a given time raise that considerably will lower cost of the money funds which are coming back in the USA. At the same time, the high US dollar exchange rate has opposite effect for not American investors who will aspire to pour the money funds from the USA in own countries where they will have the big cost.

Rate fluctuations of currencies

For example, in the beginning of 2000 the dollar cost 1,25 Euros, but in the end of 2004 dollar cost has constituted only 0,73 Euros. Throughout the given period of time decrease in actual cost of capital investments of foreign investors in America on 40 % was observed.

As one more example of the risks connected with foreign investments the situation often arising with immigrants can serve. For example, persons of retirement age with the fixed income from Southern Africa, living in America, have promptly grown poor in 80th when there was an easing South African rend, completely destroyed their capital, stored in the homeland.

Despite risk and variability, the diversification of foreign exchanges, nevertheless, remains to the integral component of investment process. Exchange rate fluctuations are an initial element of similar investments. However loss of 40 % by investors on one party of Atlantic means profit of the exactly same volume for investors on other party. If you decide to fill up the portfolio with foreign investments, risk management in the form of concentration on profit earning at the expense of growing currency is required.

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