Diversifying currency exposure
Investors should be alert to forex market volatility that could significantly affect their portfolio value, reports GENEVIEVE CUA
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THE foreign exchange market, where one currency is valued against another, is by far the largest and most liquid market globally. Based on data by the Bank of International Settlements, global forex trading averaged US$5.3 trillion a day as at April last year, compared to US$4 trillion in 2010 and US$3.3 trillion in 2007.
Investors, whether or not they trade currencies, should keep forex in mind. This is because macro events, investor appetite and fund flows could cause marked trends and sharp volatility in currencies. These movements could make a significant difference to the value of their portfolios.
Says Bank of Singapore FX strategist Sim Moh Siong: "When you own assets, you are exposed to currency risk relative to a base currency . . . Clients generally want to know how to position themselves, not for the short term but for the medium term in terms of maximising the returns and preserving wealth relative to a base currency."
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