Dealer's choice

PUBLISHED : Monday, 02 July, 2012, 12:00am
UPDATED : Monday, 02 July, 2012, 12:00am


Related topics

If an investor decides to take the plunge into foreign-currency investments, there are plenty to choose from.

HSBC offers a wide range of foreign-currency time deposits. For example, the bank pays 3.25 per cent (annualised) for a six-month Australian dollar deposit. The catch is that the account holder is exposed to the ups and downs of the currency for the life of the deposit.

J.P. Morgan Asset Management offers a local currency bond fund (JPM Asian Total Return Bond) that invests in Asian currency bonds (such as Thai government inflation-linked bonds, or Indian government debt). The fund has returned 5.6 per cent so far this year in US dollar terms.

Fidelity's Australia fund invests mainly in Australian equities, such as such shares in Commonwealth Bank of Australia (CBA), and Rio Tinto. The Aussie-dollar-denominated fund returned 9.5 per cent in the first quarter of this year, according to Fidelity. Barings has a similar fund that returned 12.2 per cent in US dollar terms in the same period. Its top holdings are shares in Westpac and CBA.

Deutsche Bank has an Australian dollar exchange traded fund that tracks the returns seen in Australia's money markets. Money markets deal in short-term debt and are therefore quite safe (few lenders see their creditworthiness decline radically in one month, for example). The fund replicates the returns of Australian money markets, which reflect Australia's generous interest rates (among the highest of the developed world). The fund has returned about 5.2 per cent since its launch in March last year.

For those investors looking to make a straight punt on currencies, banks offer foreign-exchange options such as puts or calls. Private banks might also invite clients to sell a put option on a currency, which involves a commitment to buy a currency at a set price.

Clients get paid for this commitment, but it is risky, because if a currency falls by a lot, a person might find himself buying a lot of the currency at a level substantially above the market rate.

A Citibank instrument called Premium Account effectively asks clients to sell a currency put to the bank, for which they get enhanced yield. The clients choose the currency.