What is the currency of financing?
The funding currency is any national currency that currently carries a very low interest rate and can be used to buy a wide range of assets that are able to generate additional revenues. The use of this approach allows the investor to use any type of spread that can exist between this currency and the asset purchased. When the best effect has been done, the investor is able to take advantage of the benefits that would not be used for the purchase activity for a higher interest rate.
The use of a currency currency to buy different types of investment is very common. One strategy requires the use of a low -interest rate in foreign exchange or forex investment. With this scenario, the investor uses a low interest rate currency to buy a higher interest rate currency. Assuming the exchange rates are directed in the direction projected by this investor, he or she generates a considerable return using this method.
Other types of assets can also be purchased using a funding currency. TeNETTO access can be used to obtain various shares, bonds and commodities. As the value of these investments increases, it only serves to increase the rate of return, which is ensured by the execution of purchases in a low interest rate.
One of the more attractive characteristics of using the funding currency to buy investment is that the strategy has a relatively low failure potential. The main potential risk is related to the unexpected appreciation of this currency, which tends to minimize the range and reduce the benefits for the investor. For this reason, choosing the right currency for the effort to finance is extremely important, not only in terms of the current level of interest associated with this currency of financing, but also what will probably happen to the rates in the future.
during most of the first decade of the 21st century. The Japanese was often considered a currency of financing, due to the consistently low interest rate associated with the currency. WhenThe global economy entered the period of recession, began to appreciate it compared to other national currencies, which in turn has made less attractive to use as a currency of financing. The shift in the currency of financing during this recession has served many investors that although identification of low interest rate currency and its use to purchase investments is a viable plan, there will always be a certain degree of risk, which will always be important to project future movements before the agreement.