Investing in foreign currency

Investing in foreign currencies requires a considered approach, as you have to deal with a highly volatile market. Foreign currencies constantly rise and fall in value against the euro. In most cases, this value is expressed as the amount of the foreign currency that is worth one euro. Current exchange rates can be found on most financial websites, as well as on the National Bank of Belgium website.

A basic rule for every investor is that the more prices fluctuate, the higher the investment risk. And that definitely applies to anyone wanting to invest in foreign currency. Exchange rates are notoriously difficult to predict, so it's never a good idea to gamble on the value of a currency going up or down. Especially when you realise that even experienced investors regularly make mistakes when it comes to assessing trends on the foreign exchange markets. You should therefore never start investing in foreign currency without any preparation. Make sure you gather the background information you need and get advice from a financial expert. 

Another important rule in the investment world is to spread risk. After all, if you do everything in a single currency then you run the risk of your entire portfolio getting hit at the same time. It's possible to achieve maximum diversification when investing in foreign currency too. You should definitely keep this in the back of your mind if you invest in currencies belonging to less stable economies.

To avoid any nasty surprises, bear the following in mind:

• Don't aim for a quick profit. So-called 'forex trading', where foreign currencies are bought and sold in quick succession, is highly speculative and therefore comes with high risks.
• Don't gamble. Aim for creditworthiness and limit your risk of a default. The more exotic the currency, the more cautious you should be. Consider buying bonds issued by supranational institutions, for example.
• Don't leave things to chance. Monitor your investments closely, as exchange rates are highly unpredictable.

There are different ways to invest in foreign currency:

1. Bonds in a foreign currency are very popular. To be more specific, you invest in corporate bonds that are issued in a whole range of currencies. The return depends on both the interest paid by the bond and the changes in the value of the foreign currency concerned.
2. Another option is to open a time deposit account in a foreign currency. The return on this investment depends on both the interest paid by the time deposit account and changes in the exchange rate for the foreign currency you are investing in.
3. In the case of shares in a foreign currency, the return depends on both the performance of the share price and the value of the foreign currency concerned. Those looking for more security can also opt for an investment fund in a foreign currency.

There are also a whole host of speculative foreign currency investments available. However, they come with high levels of risk, so you should always get as much information as you can about the investment product in question. If you’d like to find out more about this type of investment, make a no-obligation appointment with one of our experts.