V.9:1 (29-32): Currency Investment With Tactical Trading by John Beatty

Currency Investment With Tactical Trading by John Beatty

Foreign currency deposit accounts — for German Deutschemarks, British pounds and so forth—are not routinely available in the cities and towns of the United States. In fact, before January 1989, federal law prohibited such accounts. As a consequence, many believe that currency investments comprise only the trading of futures and options. And unfortunately, for many investors, futures and options are definitely too risky.

Should you want to move your funds across foreign currency deposit accounts in a bank, however, you do have interesting investment alternatives. Currency exchange rates have numerical volatility for long-term and short-term trades just the way that stocks do. You can also engage in arbitrage, simultaneously buying one currency while selling another. For two currencies, relative changes occur between the exchange rates and also between the interest rates paid on deposit accounts. Banks also offer, not futures, but forward currency contracts. They also offer interbank currency options. And some banks will even lend up to eight times the holding.

Figure 1, an output from the alpha-beta trend program detailed in an article by Anthony W. Warren, depicts the moving exchange rate of the German mark, showing that particular currency's volatility and potential for trades.