Published:
November 5, 2007
The
correct answer is
(B.) 2.2 Billion
Over the past four years,
Berkshire Hathaway has pocketed
about $2.2 billion in profits from
direct foreign currency forward
contracts, mostly on the euro ($839
million), Canadian dollar ($398
million), and British pound ($287
million).
Foreign exchange can be a
complicated concept, but if you have
traveled abroad recently, then you
probably understand the impact of a
weaker dollar when it comes to
purchasing power. In early 2002, it
took about $0.83 to buy one euro --
now it will cost you about $1.40. In
other words, the same 200-euro per
night Paris hotel room that cost
$166 five years ago will now set you
back about $280.
But what's bad news for the U.S.
traveler can be great news for the
U.S. investor. And you don't have to
invest in complex, risky currency
forwards and other derivatives as
Buffett did to take advantage of
these market conditions.
For example, stocks of U.S.
multinationals, which get a boost
when a falling dollar makes their
products more competitively priced
in foreign markets, can be good
investments. Meanwhile, securities
denominated in foreign currencies
can make big gains, even if there is
no share price appreciation,
simply due to the change in the
exchange rate. There are also
dollar-denominated commodities such
as crude oil, corn, or copper. They
post gains when the greenback
deteriorates because
dollar-denominated commodities
become more attractive to foreign
investors holding stronger
currencies. It's no coincidence that
as the dollar has plunged, gold has
soared to near $800 per ounce, and
crude has gone above the $90 per
barrel mark.
But by far the easiest way to profit
from the falling dollar is with
exchange-traded or closed-end funds
focused on firms that benefit from
the dollar's decline.
After all, you can invest in a
single multinational firm, but if an
accounting scandal or some other
calamity hits that
company, your exposure could cost
you serious money. Meanwhile,
investing in individual foreign securities can
be a difficult and expensive task
for domestic investors.
However, funds offer a way to
diversify across many securities --
this limits your exposure to just
one company -- and they also offer a
simple, inexpensive way to buy
stock in foreign firms.
And Nathan Slaughter, editor of
StreetAuthority's
ETF Authority
newsletter, has studied the options
and unearthed six funds that are
great starting points for investors
looking to capitalize on the
continued decline of the dollar.
This includes one fund trading at a
7% discount to its net asset value (NAV)
-- that means you can pick up a
dollar's worth of portfolio assets
for just 93 cents. Meanwhile, the
same fund also yields an tantalizing
7%. To see Nathan's
entire list, as well as in-depth
profiles of his two favorites, you
have to be a subscriber. If you
would like to learn more, please
visit this link.
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