Forex Investing

Labels: Forex, Investment Management on Saturday, January 31, 2009 at January 31, 2009

Investing in a foreign currency (Forex)

In class, while talking about investing in foreign currencies, our professor posed the question on when we should invest in foreign currencies. His answer really surprised me. Read on to find out what he said.

A large percentage of my financial portfolio is in U.S. dollars. I bought most of my dollars when it was selling at around 56 pesos to a dollar. That was around 4 to 5 years ago. If I were to sell my dollars now then I would incur a considerable loss as the dollar is selling at around 47 pesos only nowadays. Luckily, I still don't need to have them exchanged.

I was fortunate enough to be able to work in Japan for 4 years. Hence, I hold a considerable amount of Japanese Yen as well. At that time, the yen was trading at around 0.30 pesos to 1 yen. It rose to around 0.55 pesos in 2004 but went down to an average of 0.40 in the previous years. Right now, it is trading at around 0.52 pesos to a yen again. I'm taking the opportunity and unloading some of my yen as it might not rise to this level again in the years to come. Besides, Yen accounts do not earn interests (even when put in a time deposit) unlike U.S. dollar accounts.

In response to my professor's question I answered that you should invest in other currencies if your own currency is not that strong, meaning if your currency's value fluctuates a lot and the fluctuation amounts are big. Also, investing in strong currencies preserves the value of your money. Somehow, a strong currency guarantees the value of your money because in the long run, as long as that currency you invested in remains strong, it will always be worth something.

Later in the discussion, our professor then said that the most stable currency is the Swiss Francs.

However, our professor left us this advice on Forex trading, "Invest only in Forex if you can manipulate the market." He said that if you can't manipulate the market you still would lose some value in the long run. He then gave out the name George Soros, the man who was accussed of manipulating the Thai Baht which started the Asian Financial crisis.

What do you think? Do you agree with my professor's insights?

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