Is it wise to invest your money in foreign currency in hopes of the exchange rate coming out in your favor?
Greetings! Here is a forex trading question I found when I was looking at Yahoo.
Like if I were to invest in Canadian dollars…….
hoping the value goes up…….
and 5 years later convert back to U.S. dollars.
It that a wise investment?
I enjoyed that forex trading question and answer session. If you aren’t satisfied with any of the answers, please ad your own.
Have a happy time!
2 Responses to “Is it wise to invest your money in foreign currency in hopes of the exchange rate coming out in your favor?”
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July 29th, 2010 at 11:51 pm
Foreign currencies do indeed have an important role in a diversified investment portfolio. Their purpose is either to hedge against changes in the value of local currency ($), or as speculation (what you are calling ‘hopes’).
If you are looking to hedge $ fluctuations, I suggest investing in a number of diferent currencies, perhaps through an ETF such as UDN, or even CEW.
Forex speculation is a bit more risky, especially because you will probably need to leverage your bets to make the moves significant. I would only advise doing that if you really understand the market and are not relying only on ‘hopes’.
Hope that helps.
July 29th, 2010 at 11:51 pm
The Canadian Dollar has already had a good run over the past year or more and is already near parity with the US Dollar, which is hurting cross-border business with the US. I’d say you’re a little late to the party, especially now that the stimulus/bailout by US gov’t is winding down and the USD showing renewed strength, which is likely to continue.
The active word in your question is “hope.” Not a good reason for investing.
But don’t let me discourage you, mine is just an opinion, trying to think of angles you might want to consider.
The thing that kills most currency traders and investors is leverage. De-leverage or buy the FXC ETF and it can be held long-term just like a stock.
Especially if you need Canadian Dollars in the future, it may be wise to lock in the rates of today, at least for part of your need, or to hedge against change in valuation.