What seems to be bad for the goose is not necessarily good for the gander. Or is it the other way around? And what's a gander anyway? Isn't it an adult male goose? What I am getting at is that there are so many swings on the currency level in the world that bad news for a certain economy may be good news for some other economy.
Keep this in mind. When you are looking at where to put your money factor in currency movements, which most people do not even consider. However, such movements in exchange rates alone might easily change investment returns.
The people in England know this all too well because over the past year the weakness of the dollar against the sterling has pretty much canceled out any profits being made on the U.S. stock market. In other words, any movements up or down in exchange rates can impact investment returns as UK investors realized this year with dollar-denominated assets.
Looking at it from the dollar standpoint, the MSCI North American index points out that the U.S. market had appreciated by more than 11 percent over a 12-month period that ended July 31. But in checking it from the Brit's side, the index on sterling had dropped by one percent because what had been made on the market had been lost on the currency. The Far East has been affected as well as because their currencies are also connected to the dollar.
As has been explained by various currency strategists, currency management can have two roles: to neutralize risk, and to add value. Actually, in terms of global fixed interest funds, currency management is quite common.
There are some who claim that currency considerations are not part of the equation with respect to a choice of investments. I'm not so sure about that. From an investor's standpoint, it's been pointed out time and time again that the most important aspect of currencies is to be aware of the risks involved and to find out what a fund manager's strategy is for dealing with the money. If anything, that will give you a clue as to what you might expect down the road.
Something to munch on.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access