Investing In Foreign Currencies

Investors dealing with foreign currencies can benefit from the changes in foreign exchange rates and if the right basket of currencies are invested in, your investment portfolio would not only be properly diversified, the gains can be amazing.

At some point or the other, we’ve had to trade with foreign currency. At the very basic level, when we travel to other countries, our money is as good as useless – we have to spend the denominating currency of the country we’re in.

If you work online as well, clients might have paid you in other currencies. You might even have an uncle who gave you some dollars some time ago when he visited. What this means is that we already know how the difference in value can be a blessing (like when you get dollars for work done and enjoy the conversion gains) or a serious burden (like when you make money in Naira and have to pay for items in dollars.)

For investors, there are indeed amazing opportunities to explore with foreign currencies but the first thing is to understand what foreign exchange is about. Foreign exchange, which is popularly calles “forex” is basically the conversion of one currency to another one.

Because the world has now become a global village, currencies can now be pegged to a myriad of other currencies and this is what now aids comparison. An exchange rate which is governed by many market forces factors relating to trade, investment, tourism, demand and supply, inflation rate, political risk and so on, would then exist (in a constant state of flux) to show the state of one economy in comparison to another.

Just as you exchange the Naira for the local currency of whatever country you are travelling to or doing business with, you can also invest by exchanging your currency for theirs and leave denominated in theirs.

Investors dealing with foreign currencies can benefit from the changes in foreign exchange rates and if the right basket of currencies are invested in, your investment portfolio would not only be properly diversified, the gains can be amazing.

Foreign currency investment is not uncommon with investors because of the possibilities of higher returns and they do so in a diverse number of ways. It includes purchasing a strong foreign currency like the Pounds Sterling and simply keeping it in a relevant foreign currency account.

With this method, you enjoy the gains that come in that currency against your currency or the one you purchased them in as well as the overall growth of the Pounds.

You can also invest in international funds. This is an amazing option as well because it gives you a simple route to investing in companies from different countries.

Finally, you can also invest in foreign currency bonds or shares and gain not just from the growth of the stocks you invested in, but also from the currency changes.

The investor then needs to find the foreign currency investment which suits his or her needs best and this involves a clear understanding of the risks involved.

In our next post, we would review the risks and rewards that come with investing in foreign currencies and how such investments can be explored.

Written by Lawretta Egba.