The dollar on a precipice? A debate raging among the financial world is whether the U.S dollar is overvalued.
You might have read stuff in the financial press about this. Most of this rages around the sustainability of America's current account deficit and whether foreigners will keep financing this deficit with capital investments. Read more about Current and Capital accounts at one of my previous posts.
So, what does the expected decline in the Dollar mean to YOU?
For those with an appetite for risk, one should consider trading on the foreign exchange(FOREX) markets. If you think the dollar is overvalued, you should SHORT it against other currencies for example the Japanese Yen or British Pound. Alternatively, you could go LONG on currencies that may appreciate against the U.S dollar. There are brokerages that cater exclusively to such investments.
An alternative is to buy stocks in companies that will benefit from a dollar decline -- like American exporters. These firms will gain as foreigners will find it cheaper to buy American goods as the dollar falls.
In the US-India context, since most of India's IT revenue comes from exports, you might want to tread with caution when investing in IT firms like Infosys and Satyam. If you are aggressive, you might consider shorting them - if you are sure the Rupee will appreciate against the Dollar.
Disclaimer: I am NOT an investment advisor, nor do I represent any financial institution. Any investing should be done with caution and after significant DUE DILIGENCE.
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