Currency Risk for Investors

Read More

currencyCurrency Risk for Investors

Investing offshore helps to spread risk because not all markets around the world move in the same direction at the same time. Diversification between markets offers the opportunity to reduce risk and improve return, however along with this opportunity comes the risk associated with fluctuations in exchange rates. These fluctuations have a direct effect on the value of investments. For example, if you have investments in Australia which are producing a good return and the value of the New Zealand dollar increases with respect to the Australian dollar, then the value of your Australian investments, when converted to New Zealand dollars, will fall, thus reducing the total return on your investment. Of course, the opposite can also be true and returns can be enhanced if the New Zealand dollar falls in value. Predicting exchange rates in the short term is by no means an easy feat, because there are so many variables at play. Investors can reduce their currency risk by hedging with currency futures. Futures contracts are advance orders to buy or sell an asset, in this case a currency. An investor expecting to be repaid funds in a foreign currency at a future date can lock in the current exchange rate by entering into an offsetting currency futures position. It makes sense to do this when you are expecting a change in exchange rates that will have a significant adverse effect. If your offshore investments are in a managed fund, it pays to find out what the fund’s hedging policy is. Some funds are hedged and some are not. Of those which are hedged, some may be fully hedged and some may be hedged at the discretion of the fund manager, usually within certain limits. The impact of currency risk should not be overlooked when investing offshore.

Related Articles

Economy
Liz Koh

Budget Winners and Losers

The latest Government budget had something for everyone but while most households will be a few dollars a week better off, there are some clear winners and losers. In the winners’ corner are businesses, those on high incomes, and savers. The biggest losers are property investors who have built large portfolios financed partly by tax rebates.

Read More »

Top Up or Miss Out

The end of June is an important date for KiwiSaver members. The financial year for KiwiSaver runs from 1 July 2009 to 30 June 2010 and if you have contributed at least $1,040 to KiwiSaver during that time, you will be eligible for the full amount of Government tax credit to be paid into your KiwiSaver account in July.

Read More »

Responsible Investing

There is a worldwide trend for investors to want to make a positive contribution to the world by investing in companies that are socially and environmentally responsible. If you are passionate about the effects of climate change, the scarcity of food and water, and social or environmental policies in general, then you will no doubt wish to ensure that the companies in which you invest are going about their business in a manner that is consistent with your views.

Read More »

Helping You Live your retirement To the Max

Keep in touch

Fill in your details and we’ll get back to you in no time.