Why currencies?

Thu Jun 24, 2010


The benefits and tripwires in currency trading


Here are two statements that help to shed some light on why so many funds fancy their chances in the zero-sum game of currency investment:

Because of Unilever’s broad operational reach, it is subject to risks from changes in foreign currency values that could affect earnings. As a practical matter, it is not feasible to fully hedge these fluctuations.

(Unilever 2009 annual report, note 15)

The trade-weighted external value of the Swiss franc has increased further, mainly as a result of the recent weakness of the euro. Since the SNB [Swiss National Bank] no longer has any room for manoeuvre, [it] has been intervening in the foreign exchange market. In doing so, it is aiming to act decisively to counter an excessive appreciation of the Swiss franc against the euro, since an appreciation of this kind would result in an undesired tightening of monetary conditions.

(Swiss National Bank, 11...

ISSN: 2151-1845 / CDC10004H

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