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Created on 05.12.2018

Invest in foreign currencies – euros, dollars, etc.

Foreign currencies and exchange rates can be interesting not only when travelling abroad on holiday. Foreign currencies also offer exciting opportunities for investors. There is a lot more to it than just euro accounts and international shares. Amongst other things, you can benefit from developments in the exchange rate and diversify your portfolio.

Investing money in a currency of a country which is not their own is very popular with many investors. This is because they are lured by financial advantages, such as the chance of higher returns. But it is for exactly this reason that investing in foreign currencies  often involves certain risks. In this article you will find the information you need to know when investing in other currencies. It will help you find the foreign currency investment which best suits your needs and better evaluate the currency risks for your investment.

There are a number of ways to invest in foreign currencies: for example, by buying US dollars or euros directly and depositing them in a relevant foreign currency account  with your bank  – or even keeping them in cash. You can also hold time deposits in foreign currencies. But there are even more investment options, such as funds, currency ETCs, foreign currency bonds or shares.

Foreign currency bonds: benefit from higher interest rates abroad

Instead of buying foreign currencies directly, you can invest in foreign currency bonds. Here you will receive interest and can benefit from appreciation of the foreign currency against the Swiss franc in the event of resale. You can trade foreign currency bonds on the Swiss stock exchange and international stock exchanges. Ideally, you will benefit from higher interest rates abroad. And you can also benefit if foreign currencies perform particularly well against the Swiss franc. The risk of foreign currency bonds depends on which currency you invest in. Therefore, before investing in bonds linked to a particular country or currency zone, make sure you are well informed about the economic situation of that country or currency zone. You can find out more about this in the article “What are ratings?”.

Funds: leave selecting the currency to the fund managers

Funds are attractive instruments for beginner investors who would like to diversify their portfolios with foreign currencies. They offer a relatively easy way to invest in companies from different countries or currency zones. You cannot rule out risks when purchasing funds which include foreign currencies. The risk that foreign currencies can lose value against the Swiss franc is especially important. If you would like to protect yourself against exchange rates fluctuations in securities, you can also invest in funds hedged against CHF (hedging).

Invest in foreign currencies with currency ETCs

Currency ETCs (exchange traded currencies) function in a similar way to ETFs. You can find out more about ETFs in the article “ETF – trading funds on the stock exchange”. ETCs mirror the development of an exchange rate for various currencies (e.g. USD or CHF or CHF to selected currencies). They therefore also mirror the various interest rates. In an ideal scenario, investors can benefit from higher interest rates in the foreign currency (in this case, in USD). ETCs are more complex than funds in foreign currencies and foreign currency bonds and as such are primarily suited to experienced investors. This is especially because investors who invest in currency ETCs should look closely at the underlying index and must understand how to hedge against various exchange rate fluctuations with currency ETCs.

Shares: investing in foreign companies

Of course, you can also invest in foreign currencies easily with shares: if you buy shares abroad then you are also investing in the currency of that country. If you sell the shares again, you may benefit from an appreciation of the foreign currency against the Swiss franc. This would mean a gain on the exchange rate in addition to a possible gain on the share price. It can however be the case that there are higher fees for foreign shares – you can find out more about this in the article “How to pay tax on returns on investment”. You should also be aware of the exchange rate risk: shares in US dollars, for example, depreciate if the dollar weakens against the Swiss franc. In this case, the following generally applies: focus on the quality of a share instead of a possible exchange rate gain. In our article “Shares – the five key indicators” you can find out how to better assess the quality of a share.

If you want to benefit from developments in foreign markets, there is a whole range of investment options in foreign currencies available to you. They vary in their nature, risks and opportunities. Beginners can get to grips with the subject by means of foreign currency accounts and funds in foreign currencies, as well as selected foreign currency bonds. Advanced investors will find exciting investment opportunities in currency ETCs.  

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