Currency

The relationship between any two currencies is important. As one currency weakens relative to the other, it loses purchasing power but gains favoritism in international trade. This is one reason that China has artificially devalued its currency, the Yuan, in order to boost international demand for its goods. The profits lost by keeping the Yuan relative value low is more than gained back with increased exports to foreign countries.

Likewise, when there are large spikes or dips between the value of two currencies it creates a good opportunity for the purchaser if the difference in value has swung in a favorable direction. If we look at the Euro versus the US Dollar in 2008 the ratio was just under 1.6, meaning that 1 Euro was worth about 1.6 US  Dollars. Today, that ratio is down to 1.25. This represents roughly a 25% difference in value in favor to the US Dollar. It is without doubt that the debt crisis in Europe is the leading factor in the keeping the Euro/Dollar ratio at its current value. That being said, I believe that if anyone has been currently contemplating either traveling to Europe or purchasing any goods produced in the Euro Zone it is currently one of the best times to do so in the last three or four years.

Now, lets look at someways to take advantage of this currency relationship. There are a few ways for a possible gain when and if the Euro regains some strength back compared to the US Dollar. One way is to go is walking into your local bank and purchasing a bunch Euros and then buying back US Dollars when the Euro becomes more valuable. An other way to attempt to gain from Euro bounce-back is to purchase an Exchange Traded Fund (ETF). There are a few Euro denominated ETFs traded in the US markets, and they provide potential returns just like a convention stock. These returns are then multiplied by the change in value of the Euro/Dollar. This makes the trade more volatile, and thus increases the risk. It is possible to have a trading gain be offset by a currency swing in the same trading day. One fund that meets these criteria is iShares' Euro Corporate Bond fund: IBCX. It holds bonds from major corporations in the Euro Zone, and its returns are also influenced by the value of the Euro/Dollar. I have not personally bought this fund, just one that is on my watch list. I think that it would be a good time to invest in this security, as I believe that the Euro/Dollar will not devalue much farther than it already has, as well as I hope that we have seen the worst out of the European debt crisis.