The world is a big place – there are over 190 countries and 7 billion people in the world, which really boggles the mind if you sit down and think about it. In addition to being an interesting intellectual exercise, this fact can also have broad implications for your investments and your financial future. It is easy to stay focused on U.S. firms, news, and events during the day-to-day grind, but it is always important to be aware of your surroundings – especially when it comes to your investments. With that in mind, this series of articles will focus on countries and investment opportunities outside the United States that you might not usually hear about.
As always, be sure to consult a financial services professional familiar with both the potential investment and your unique financial situation before embarking on any investment program.
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Currency Risk
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Dollars are a nearly ubiquitous form of currency, a medium of exchange, that is used across the world. Vendors, businesses, and trade partners around the world all accept US dollars (USD) as a form of exchange. That said there are numerous other currencies in the world today; the yen, yuan, euro, and the pound sterling are just a small sampling of most well known foreign currencies. The USD commands a prominent position in international markets due to its place as the 1) global reserve currency, and 2) the currency that oil transactions are priced in.
It is always important, however, to keep in that mind that just like everyone in the world does not speak English, not everyone uses USD.
Just yesterday, the Russians and Chinese inked a 30-year oil & natural gas deal, in addition to bilateral currency that have been struck. Striking bi-lateral currency agreements adds an additional layer of complication to international transactions. These effects obviously impact the firm themselves, but think about it; if a firm you invest in earns revenue in euros, but you own it is USD how do you hedge (reduce) your risk?
Food for thought?
Happy Reading!
http://www.investopedia.com/terms/c/currencyrisk.asp
http://www.nytimes.com/2014/05/22/world/asia/china-russia-gas-deal.html?_r=0
