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Not Easy for the Stock Market to Pick!

11 July 2007 - Features - Editor

Global trends mean that you can no longer play the stock market without understanding currency matters. Executives responsible for buying ingredients from other countries, exporting products and services, and for repatriating dividends for foreign group headquarters, have always been seized of relative values between dollars, pounds, euros, yen, and other currencies. However, interest in this area has widened in stock market circles as investors realize that there is good money to be made by forecasting changes in relative values.

Many stock market analysts do not believe in holding more U.S. dollars than they need in the short term. The Federal Reserve shows no signs of relenting the strongly interventionist style. The geo-political situation and domestic spending on healthcare give few reasons to think that the currency of the most powerful economy on earth today will remain stable: there are more compelling reasons to believe that relative values will fall against other freely traded currencies, than that the greenback will rise.

Stock market opinions are divided on whether the Swiss Franc or the Euro is a better haven for cash from liquidated dollar holdings. Both currencies are exceedingly well managed and represent lasting and conservative values. They have more similarities than differences, though governance in Switzerland is distinct from the Union, which it has very consciously decided not to join.

The European Union is much larger than any individual country on the continent. The combined industrial power of all the countries represented in Brussels is far more diversified than the financial services, watches, pharmaceuticals, tourism, and branded foods, which are the mainstays of the Swiss establishment. However, the Swiss economy has fewer pressures on it, which augurs well for its Franc.

The stock market is accustomed to using interest rate differentials to trade in currencies, but this is not a distinguishing feature when you have to choose between Euros and Swiss Francs. Both these currencies seem to have stellar attractions, so an answer might be to hedge and hold portions of both in a portfolio.

Do write in and tell us of your experiences in trading in convertible currencies, and let our other browsers and us share your valuable insights in to how we can benefit by projecting changes in relative currency values accurately.

 


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