In this second part of Currencies we will go on asset protection. After bringing some light into currencies and diversification, we will concentrate during this article on how to handle it in practice.
Before starting to discuss product solutions we will have to clarify your aim in diversifying in currencies. In the case of the wish in participating changes in currencies some solutions will be preferable then others. If you are seeking for investment in another currency because you are a businessmen which will have to make some transfers in another currency. Then you will ask for some special requirements other then an investor.
Beginning with the first, participation on currency changes. In this segment you will have the two options of investment forms. Option one is the investment directly into the currency and option two is the use of a vehicle which will let you participate only.
Second one is more likely for those which want to make money on a movement in the prices by itself. For this you can use structured bonds / notes or warrants and futures. The positive side is that you can buy exactly what you want to have in your portfolio. Also you will have the opportunity to bring in a multiplication, which can rise by a factor your earnings and as well your loses. Negative is from a side that you will not own the currency directly and this are complex structures. I strongly recommend to be aware what you are buying and that you understand the upsides as also the downsides.
First option I would name the professional investors and also entrepreneurs one. The expectations are some others when this groups are thinking of going in other currencies. The group of professional investor uses also option two, but more likely for short periods to get some extra return on investment (ROI) or to secure open exposures. Professional investors typical will not invest in readymade structured notes, they have the background and knowledge to build their own combinations as needed. Closing exposures will be understood in this context to purchase an insurance for bad times. With an exposure can be dealt in three ways, knowing you have the one and deciding to take it. You keep as European investor your stock from USA. Second deciding that it is to great and you do not want to have it anymore in your portfolio, then you will sell it.
Or third and the most often found one is, you still like the company which you invested in. But you do not like the open Euro US-Dollar exposure as in our example. Then you can secure your position by buying a warrant or future and hedge your exposure. Meaning if the Dollar moves against you, your hedge / insurance will cover the loss.
A company has most likely to do with currencies when making business with other countries. With this background we are thinking only about risks and would like to plan as long as possible ahead. An entrepreneur has several options beginning at the point of writing the bill, in which currency would you like to have your money. If you are in the stronger position, then you have the choice. It is a point to discuss when doing business.
Lets stay with the example of Euro - US-Dollar, if you are located in Europe and you are selling machines to US-customers it could appear to put a price tag on it in Euro. The situation will be other in the case that you have also expenses in US-Dollar. Then you could make the sell in USD and keep the money on a USD currency account. By doing so you will not have a risk and any insurance expenses.
Currency accounts are great and as simple as a normal bank account. They are provided by each bank, also in your location. If you are an investor, think about one too. It is first of all easier to handle then to transfer all through a Euro account and second you will not have any tax issues.
In the situation that you will have higher amounts to transfer in a known timeframe and you are thinking that the required currency will change in a negative direction then you can use the vehicles mentioned above. This would a warrant or future, but you could park some liquidity also on your currency account. Second one has the advantage that it will not cost you any fees, disadvantages will be that you have to provide the upfront liquidity.
Independent from your situation when thinking to invest in different currencies remember to take all the time a currency account on board. This will give you the control of the timing and deciding the amount which you would like to transfer back into another currency.
Before starting to discuss product solutions we will have to clarify your aim in diversifying in currencies. In the case of the wish in participating changes in currencies some solutions will be preferable then others. If you are seeking for investment in another currency because you are a businessmen which will have to make some transfers in another currency. Then you will ask for some special requirements other then an investor.
Beginning with the first, participation on currency changes. In this segment you will have the two options of investment forms. Option one is the investment directly into the currency and option two is the use of a vehicle which will let you participate only.
Second one is more likely for those which want to make money on a movement in the prices by itself. For this you can use structured bonds / notes or warrants and futures. The positive side is that you can buy exactly what you want to have in your portfolio. Also you will have the opportunity to bring in a multiplication, which can rise by a factor your earnings and as well your loses. Negative is from a side that you will not own the currency directly and this are complex structures. I strongly recommend to be aware what you are buying and that you understand the upsides as also the downsides.
First option I would name the professional investors and also entrepreneurs one. The expectations are some others when this groups are thinking of going in other currencies. The group of professional investor uses also option two, but more likely for short periods to get some extra return on investment (ROI) or to secure open exposures. Professional investors typical will not invest in readymade structured notes, they have the background and knowledge to build their own combinations as needed. Closing exposures will be understood in this context to purchase an insurance for bad times. With an exposure can be dealt in three ways, knowing you have the one and deciding to take it. You keep as European investor your stock from USA. Second deciding that it is to great and you do not want to have it anymore in your portfolio, then you will sell it.
Or third and the most often found one is, you still like the company which you invested in. But you do not like the open Euro US-Dollar exposure as in our example. Then you can secure your position by buying a warrant or future and hedge your exposure. Meaning if the Dollar moves against you, your hedge / insurance will cover the loss.
A company has most likely to do with currencies when making business with other countries. With this background we are thinking only about risks and would like to plan as long as possible ahead. An entrepreneur has several options beginning at the point of writing the bill, in which currency would you like to have your money. If you are in the stronger position, then you have the choice. It is a point to discuss when doing business.
Lets stay with the example of Euro - US-Dollar, if you are located in Europe and you are selling machines to US-customers it could appear to put a price tag on it in Euro. The situation will be other in the case that you have also expenses in US-Dollar. Then you could make the sell in USD and keep the money on a USD currency account. By doing so you will not have a risk and any insurance expenses.
Currency accounts are great and as simple as a normal bank account. They are provided by each bank, also in your location. If you are an investor, think about one too. It is first of all easier to handle then to transfer all through a Euro account and second you will not have any tax issues.
In the situation that you will have higher amounts to transfer in a known timeframe and you are thinking that the required currency will change in a negative direction then you can use the vehicles mentioned above. This would a warrant or future, but you could park some liquidity also on your currency account. Second one has the advantage that it will not cost you any fees, disadvantages will be that you have to provide the upfront liquidity.
Independent from your situation when thinking to invest in different currencies remember to take all the time a currency account on board. This will give you the control of the timing and deciding the amount which you would like to transfer back into another currency.
