Currency Exchange
Portfolio Effect
Strong dollar. Weak dollar. How does it
affect the value of your international investing?
First, the dollar is strengthening when it takes less
of the dollar to buy the same amount of foreign currencies..
Second, if you're my age you might think that all currency
valuations should be with the yen. That's a mistake. The euro is for real,
despite its weakening (more euros to buy foreign currencies). The Euro
bond market is flourishing. And now, mid 2005, the Chinese are coming
on like economic gangbusters and the Indians are rising too.
Simple, round number example of currency
conversion:
1. the dollar buys 100 yen
2. you convert 1 dollar to 100 yen
3. the dollar strengthens, the dollar buys 120 yen
4. you convert your 100 yen to $.83
5. when the dollar is strengthening, you lose money
on currency conversions
If you are buying stock in foreign markets and the dollar
strengthens, your capital gains are swimming against a strong tide.
Currently the US is running a huge trade deficit, esp. with
Japan and China. If you believe, like I do, that the dollar must fall relative
to them, then investing in those countries becomes more attractive.
