Wednesday, December 7, 2011

Assets investment in different currencies - USD, EUR, GBP, RUB

Why to invest in various currencies?  

World major Currencies.  There is several major currencies in the world - US dollar, Euro, Pound Sterling, Japanese yen and Swiss Frank. 

The latter is just a combination of the four currencies (Official Swiss Franc 2011 composition is 60.2% USD, 26.7% Euro, 4.2% Pound Sterling, 3.9% Japanese yen). So there is no real point to buy  Swiss Franks - they are known to change the currency composition quite dramatically.

Japanese yen - on December 29, 1989, Tokyo's Nikkei stock average reached its all-time peak of 38,915.87. Twenty years later, the Nikkei has never again reached that level — and, in 2009, reached a new low of 7,054.98.

Renminbi (CNY ), although through most of its history, the value of the  renminbi was pegged to the U.S. dollar. Recently CNY has been strengthened to US Dollar - year to year from 6.6 to 6.3 - about 5% difference.

Fear of losing value.
There is always a fear that main nest egg currency (such as USD, for example) may lose its value. 

In nowadays the world still relies on single currency and the USA must issue a lot of assets (government bonds) to lubricate global commerce and meet the demand. 

However the more bonds are issued, likelihood of that debt be ever repaid decreases dramatically, hence there is plausible risk that the countries with big  foreign monetary reserves  (China, Japan, Russia, Brazil, South Korea) will want to offload them sooner or later.

Current story.  So far the picture has been stable.  Take a look on the exchange rates to USD (January each year) over last 9 years:

If you would invest in$1,000 in CNY  back in 2003 you would only have $1,257 in 2011. Should you do the same with Japanese yen, you would have $ 1,450 in 2011.

So as investment instrument it is not worth it, unless you are willing to play on currency exchange trading (Forex).  The results are not guaranteed by any accounts.

I do not plan to keep my savings in cash apart from the emergency fund and savings for future investments. However, I do plan to invest in various markets to spread the risk.

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