International and foreign currency investments

by Barclays Wealth International on November 10, 2010

Foreign currency investments | Barclays currency investment guide

What type of investor are you?

Are you active or passive? Are you prepared to undertake a higher risk for potentially higher returns? Whatever your approach, there is a range of investments to suit varying appetites for risk and reward.

First of all you should ask yourself the following questions as they will help determine where to invest your money and what sort of service is best for you.

  • Do you want low risk and a steady return, or high risk and potentially a higher return?
  • Do you want to be involved in the research and analysis behind selecting the best investments or do you want someone else to do that for you?
  • Do you want a steady income or a return based on the asset value growing over time?
  • Do you want the transparency of an index-linked or tracker investment, or are you happy with the lesser transparency of a managed service?

You may also want to read our foreign currency savings guide.

Fully managed investment services

Here, everything is done for you. The Investment Advisers will ask lots of questions about your financial position and preferences, including what your existing portfolio contains and your tax status. Then they will propose a selection of investments.

These investments can cover any number of countries and can include fixed return such as bonds, variable return such as equities, index-linked such as exchange traded funds (ETFs) or more extensive opportunities including property, commodities (such as gold or oil) or even the fast-moving and high-risk world of currencies.

A good investment manager will explain where your money is being placed and why they have made those selections.

Because a fully managed service provides research, analysis, management and execution of trades, it is more expensive than an investment service that places funds in, for example, index-linked or tracker investments.

Index-linked and tracker investments

An index-linked investment tracks the performance of, for example, the FTSE 100. So in the case of a FTSE tracker fund when the value of the FTSE 100 goes up 0.5%, so does the value of the FTSE tracker fund.

They are not as exciting or sophisticated as a fully managed service but they have features that make them attractive to many investors including:

  • They are transparent. It is very simple to see where your money is and how it is performing.
  • They are cheaper than an actively managed fund for the simple reason that they don’t need to be managed.

Trackers are becoming more sophisticated and now include funds that are themselves investments in various indices including ETFs. The beauty of these funds is that you can choose your preferred levels of risk and potential return.

Although they tend to be available in major currencies such as dollars, euros and sterling, these funds may not be available to residents of all countries. So you need to make sure that the fund you would like is available to you. If it is not then there will probably be a similar alternative.

Structured products

Structured products track the performance of an index or asset. They come in two main forms:

  • Structured notes. These are regulated investments, the returns on which are linked to the value or level of an asset or index at the end of a specified term (typically three to six years). Some offer the reassurance that even if the asset or index performs badly you will receive all or some of your original capital upon maturity.
  • Structured deposits. A structured deposit operates in a similar way to a structured note but always offers full repayment of your capital if held for the full term. However, if the issuer fails to meet it’s obligations, you may get back less than is due to you, or nothing at all.

You can use structured products to place funds in a broad range of investments such as equities or baskets of stocks, while managing your level of capital risk.

You can also use them to diversify your portfolio by including commodities and indices that otherwise would be difficult to access.

Trusts

Trusts are a tax efficient method of passing on wealth, very often to a family member or charity. There are important rules as to what does and does not constitute a trust, so professional advice is highly recommended.

UK investments

As an international finance centre, London attracts wealth and a broad range of investment opportunities. All of the options listed above are available as well as tools for the more sophisticated investor including margin trades, limit orders, over the counter (OTC) trades and dual currency deposits.

These options can be conducted for you or on an ‘execution only’ basis. This is where you are given access to online or similar trading facilities and can buy and sell investments as and when you like.

Currencies as an investment

FX trading is a high risk activity and you can lose more than you invest. If you are comfortable with this level of risk, you can choose from a range of currency investments including managed investments, structured products and currency baskets.

You can also set up a currency tool to act as a hedge against currency movements in order to protect an asset or loan. However, it is worth repeating that this is probably best left to experienced and well-informed investors.

Foreign exchange services

If you make high-value or frequent currency exchanges there are some exchange services that you should consider.

  • Spot. The simple option in which you take the exchange rate offered on the spot.
  • Forward. You bring the deal arrangements forward by arranging to buy or sell currency at an agreed price on an agreed future date. This means you know in advance how much you’ll get regardless of currency exchange movements.
  • Option. This is like a forward but with more flexibility. For example, you may have the option of making the trade a few weeks earlier because the exchange rates are in your favour at that moment.

Mortgages

When buying a property it can make sense to do so in a foreign currency. This is usually to reduce the risk of exchange rate changes increasing the loan value relative to your income. It could also help to fix the relative value of the property in relation to the loan secured on it.

Foreign currency investment and buy-to-let mortgages are now available with most repayment structures, including fixed rate, variable rate, discount, tracker, interest-only and repayment.

See our guide to foreign currency mortgages

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Offshore

Anyone with an international banking facility can consider the benefits of tax planning. Most good international banking facilities will include offshore placements of investments, savings and mortgages as part of their service.

However, it is important that your tax situation is dealt with appropriately and this is best done by taking independent professional tax advice.

See our guide to offshore banking.

For more information or to apply

Barclays Wealth International offers a range of foreign currency investment options. Talk to them today to see how they can help you.

Call their team on +44 (0)141 352 3902†.

Visit their website

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If your loan is denominated in a currency other than sterling CHANGES IN THE EXCHANGE RATE MAY INCREASE THE STERLING EQUIVALENT OF YOUR DEBT.

Terms and conditions apply to all mortgage products. We strongly recommend that you obtain your own independent tax advice before proceeding with an offshore mortgage.

Barclays Wealth will require a first charge over the property.

Barclays Wealth is a responsible lender and when considering your application for borrowing, your financial circumstances will be appraised. Remember should you run into difficulties please contact us immediately.

In all forms of advertising and marketing material where repayments are quoted, we will show clearly a typical Annual Percentage Rate (APR). We will also clearly indicate in all lending-related advertising issued in Jersey that we abide by the Code of Practice for Consumer Lending.

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The services described on this page are provided by the following companies, which are part of Barclays Wealth: Barclays Bank PLC in UK, Gibraltar, Cyprus, Barclays Private Clients International Limited in Jersey, Guernsey, Isle of Man and Barclays Bank (Suisse) SA in Switzerland. The International Corporate e-Banking or e-FX Dealer products described on this page are provided by the following companies, which are part of Barclays Wealth: Barclays Bank PLC in UK, Gibraltar, Cyprus, and Barclays Private Clients International Limited in Jersey, Guernsey, Isle of Man. For further information on these companies and Barclays Wealth please read the Important Information. Each Barclays Wealth company reserves the right to make a final determination on whether or not you are eligible for any particular product or service.

Products and services on this site may not be available in certain jurisdictions. In particular, these products and services are not being offered in Japan or the United States or to US residents. For full details of exclusions and disclaimers please see the Important Information before proceeding. Each Barclays Wealth company reserves the right to make a final determination on whether or not you are eligible for any particular product or service.

{ 1 comment… read it below or add one }

Tradersloungeforex November 12, 2010 at 4:37 pm

Nice informative article.

But we would like to correct a flaw in the article. In the article under the following point: Currencies as an investment, it states that you can lose more than you invest. However it is possible to avoid loosing more than you invest, simply by trading the currencies on margin. Any forex broker will close out open positions if the account balance goes under margin requirement for all open positions.

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