Comments on: Foreign Exchange (FOREX) Currency CDs

By: Vic

Vic — Fri, 09 Oct 2009 15:37:25 +0000

Looks like you can’t bail out of the CD early and take a 6month interest hit since it’s variable.

“Except in the event of death or adjudication of incompetence of the holder of the MarketSafe CD, you may not withdraw any part of the CD prior to maturity. If you do withdraw early, even if that is due to the death or adjudicated incompetency of the holder of the CD, you will NOT receive Principal Protection and will NOT benefit from any upside potential of the Reference Index, experiencing a loss of principal as an early withdrawal charge. Consult the Product Term Sheet and MarketSafe Terms and Conditions for details.”

So it looks like if you pull out early, you’re not guaranteed the principal amount AND if there have been any losses you’re on the hook. Not to mention an early termination charge

By: eric

eric — Wed, 07 Oct 2009 22:51:12 +0000

If it were one year, I would think about it but 3 years is a long time to lock the money–especially in FOREX CDs that are a bit more complicated.

By: Neil

Neil — Wed, 07 Oct 2009 18:06:42 +0000

Although this is poorly explained, the CD that is discussed is actually denominated, and principle protected, in US dollars. The investments made inside the CD are designed to track the basket of foreign currencies, but the lowest possible return, measured in nominal US dollars, is 0%.

By: dilbert69

dilbert69 — Wed, 07 Oct 2009 17:09:34 +0000

It’s a bit misleading to say that you’re not putting your principal at risk. Sure, you can’t lose any of the foreign currency you put into the CD (investment risk), but each unit of foreign currency could buy more or fewer units of your home currency than it did at the beginning of the investment (currency risk). That’s not to say that you should avoid foreign currency investments, only that you should be aware that there are two types of risk with them, and one of them (currency risk) simply cannot be avoided.

By: Neil

Neil — Wed, 07 Oct 2009 15:58:20 +0000

“If you were to earn 0%, you’ve actually lost 2.80% plus whatever inflation took out the back door.”

Poor choice of words here, since it’s not true. You haven’t lost 2.8% annually plus inflation – you’ve lost 2.8%/annum exactly. The “safe” investment returns 2.8% whether inflation is 0% or 30%. Or a Weimar style 3,000,000% for that matter. So inflation is an outside parameter in comparing the two. Inflation is only a factor when comparing to either an inflation-indexed investment (like a real return bond), or to spending the money today.

By: reinkefj

reinkefj — Wed, 07 Oct 2009 14:04:17 +0000

You can take a vacation and bring back some Euros. Actually hold the physical currency. As long as inflation is low, you’re forgoing a small amount of interest. But, if we get to hyperinflation, that will be trivial.

With the congresscritters spending like there is no tomorrow, I still like gold bullion coins.

By: Juan

Juan — Wed, 07 Oct 2009 13:58:20 +0000

Hi,
If you want to assume some risk I would consider buying the following securities in a brokerage account:

World Inflation Protected securities ETF (WIP)
PowerShares Emerging Mkts Sovereign Debt (PCY)
WisdomTree Dreyfus Emerging Currency (CEW)

By: zapeta

zapeta — Wed, 07 Oct 2009 13:34:18 +0000

I read an interesting article yesterday about the dollar being replaced with a basket of currencies. Its from one of the bloggers at Time Magazine:
http://curiouscapitalist.blogs.time.com/2009/10/06/what-if-oil-werent-priced-in-dollars/

Anyway, they mention several positive and negative effects of the US Dollar being replaced as a reserve currency. It it something that could happen and a FOREX CD might be a way to mitigate some of the risk without risking the investment principal.

I’m not an investment expert and definitely not a FOREX expert, but wouldn’t increasing your exposure to international companies in your asset allocation also reduce some of the risk since these companies would be operating with different currencies?

By: Kosmo @ The Casual Observer

Kosmo @ The Casual Observer — Wed, 07 Oct 2009 12:38:24 +0000

Hey, you know what they say about gold. It’s a wonderful conductor of electricity.

So if that jewelry thing ever stops working, at least it has industrials uses to fall back on