Foreign Currencies As Investment Vehicles

In many people's mind, investment vehicles comes in various forms, with the higher risk, higher returns vehicles being stocks, foreign exchange followed by mutual funds and ETFs, and finally the safest, low returns vehicles are treasuries, fixed deposits and bonds.

Is that really true? And is it a fair comparison for fixed deposits in today's market? That is the question I'm going to answer in this article.

Fixed Deposits, or Certificates of Deposits as known in the United States, is a contract you have with a bank to lend it a fixed amount of money for a fixed period at a fixed interest rate, after which you would get your money plus the interest back into your account.

The interest rates given is usually dependent on the period you place the deposit for, the longer the higher interest. While practically guaranteed, the interest rates are usually pretty low when compared with the returns you can get using other vehicles, which is why it is considered a low risk, low return vehicle.

However, with today's global market integration, it is no longer difficult to move money across countries. In fact, with a click of a button, you can transfer money from China to the United States, or from the United Kingdom to Singapore, using the bank's exchange rates. With this, a whole new arena has been created for those who are looking for good yield and cashflow, all in the same vehicle.

Today, as EUR is still consolidating at 1.36, down from its last peak of 1.60, while the NZD is at 0.71, up from its last bottom of 0.5. Having bought the Kiwi at 0.51 fourteen months back, and earning 4.5% interest per annum, my holdings had increased 40%, while having an annual cashflow of 4.5%. I'm changing my money into the EUR to cash in on the profits while taking advantage of the current depressed price of the EUR, to get an interest rate of 1.25% per annum.

So can Fixed Deposits still be a safe and low return vehicle for investment? The answer is definitely yes. But at the same time, Fixed Deposits can also be used as a cash flow instrument or hedge in foreign currency bets. This kind of investment has been done by locals going to the money changers and holding the paper currencies, but with the kind of global integration right now, you can make money with the paper currency you are currently holding.

So while the basic idea of a Fixed Deposit being a low risk and low return instrument, it can no longer be totally ignored as an alternative instrument for a higher risk, higher return global currency investment.

Ukey Hoo is a self taught passive income investor specializing in Real Estate and Foreign Currencies. He has achieved financial freedom in 4 years while being an employee and has been helping others achieve the same results since 2008. His blog at http://www.communityofwealth.com contains many resources which will help you in your quest for financial knowledge. See http://www.thriveinyourjob.communityofwealth.com for more details of how he became financially free in 4 years.

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