How To Benefit From A Weaker Dollar

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Dec 01 2006
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Financial Times reported on Thursday that the dollar suffered sharp falls, hit by reports of weak US business activity and a benign inflation picture. The euro rose 0.7 per cent against the dollar to $1.3247, the pound rose as high as $1.9699, the yen also gained, rising 0.5 per cent against the dollar to Y115.77.

The recent pattern in the currency market can be pretty much summed up this way: another day, another decline in the U.S. dollar. The greenback has fallen to its lowest levels since March, 2005, when compared to a basket of major currencies.

So, shall we just sit tight and pray for a better time? In fact, there are vast financial instruments out there where investors can hedge against any drop/decline in any situation. The financial market is full of excitement and there’re so many ways to make money – just to list some of the popular approaches:

  • Buy Euro Currency – euro is up almost 10.9% vs. the greenback on the year, which means European exporters are losing their price competitiveness against U.S. The European Central Bank is expected to raise a key interest rate by a quarter of a percentage point next week because of inflation worries. The U.S. has left the Fed Fund rate of 5.25% intake and unlikely to move to raise rates as long as the housing slump is depressing growth. In fact there is speculation the Federal Reserve might cut interest rates next year.

  • Investing Stocks/Option of companies with business abroad – when the dollar is weak, international sales denominated in foreign currency translate into more revenue in dollars. For example FedEx (NYSE : FDX, quote) generated 37% revenues internationally, beverage giant PepsiCo (NYSE : PEP, quote) and Coke (NYSE : KO, quote), Warren Buffett’s favorite drink, which have more than a third of its business in exports.

  • Investing Energy-based Stocks/Option (covered in my article yesterday, here) – the justification was that a greenback’s decline will take off the interest rates and inflation and a more severe one will trigger panic. Analysts agreed the commodities would do well with heightened inflation. Some of the energy-related stocks are:
  1. EOG Resources, Inc. (NYSE : EOG, quote)
  2. Schlumberger (NYSE : SLB, quote)
  3. Transocean Inc. (NYSE : RIG, quote)
  4. GlobalSantaFe Corporation (NYSE : GSF, quote)
  5. EnCana Corporation (NYSE : ECA, quote)
  6. Halliburton Company (NYSE : HAL, quote)
  7. Valero Energy Corporation (NYSE : VLO, quote)
  8. Marathon Oil (NYSE : MRO, quote)
  • Investing Metals-based Stocks/Option – metals such as copper, zinc, silver and gold are the normal ways to hedge against currency risk by investors which might see rises in the prices (Gold price closed up $11.10 to $652.90 per oz as of yesterday, 30-Nov-2006). Some of the metal stocks with good ratings includes:
  1. Newmont Mining Corporation (NYSE : NEM, quote)
  2. Freeport-McMoran Copper & Gold Inc (NYSE : FCX, quote)
  3. Barrick Gold Corporation (NYSE : ABX, quote)
  4. Agnico-Eagle Mines Limited (NYSE : AEM, quote)
  5. BHP Billiton Limited (NYSE : BHP, quote) – the most diversified with exposure in energy & metal
  6. Goldcorp Inc. (NYSE : GG, quote)

So, the choices are yours on which platform serve you better in making money – be it stocks, option trading, bonds, currency trading and others.

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fall in us dollars will boost export business in usa and will halt import business , probably will create more jobs

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