Currencies: A foreign base can pay offDid you know that you can spread your money not only across classic investment instruments such as equities and bonds but also across currencies?
Three reasons for choosing foreign-currency bonds
- You have the opportunity to score foreign-currency gains.
- You benefit from the higher interest rates in other regions.
- Through Börse Stuttgart you can trade foreign-currency bonds continuously from 8 a.m. to 6 p.m.
Lock into currency gains and higher interest
With foreign-currency bonds you can invest in other currencies. This offers you two advantages. First, should the respective foreign currencies gain against the Euro, you as a Euroland-based investor gain with them. And second, if you invest, for example, in government bonds from the USA (US Dollars), Australia (Australian Dollars) or Brazil (Brazilian Real), you also benefit from the potentially higher interest rates compared to Euro-denominated government bonds. Seen in this light, your “foreign” base can pay off. Although you should of course realize that where there are opportunities there are also risks, arising from exchange-rate and interest-rate volatility.
What you as an investor should consider
- The nominal sum of foreign-currency bonds always refers to the foreign currency.
- The coupon, meaning the level of interest, is likewise paid in the foreign currency. The equivalent value in Euro fluctuates, however, as it depends on the exchange rate at the point in time when the interest is paid.
- In the case of bonds from issuers in the emerging markets you should bear in mind that higher interest rates as a rule reflect higher economic and political risks.
Simple to trade
You can buy and sell foreign-currency bonds during continuous trading through Börse Stuttgart. In this way you can invest in different foreign currencies around the world. If, moreover, you have a foreign-currency account, you can use a special Börse Stuttgart trading platform (“FXplus”) to settle transactions in foreign-currency bonds in the nominal currency rather than Euro. That saves you the costs of currency conversion that you would otherwise incur.