Investment Sight

Money buys the securities

You have to use a certain currency to buy the relevant securities. This might appear to be an innocuous detail that is not worthy of great attention but the type of currency you use to buy your securities can have a devastating effect on the final value of that security.

In fact you will have to come to an agreement as to the currency that is to be used throughout the lifetime of the security and it might prove to be a difficult task to change it. Those people who operate within the securities sectors will know the currencies that work and those that are a dud. If you happen to live in a country that has a dud currency then you are in all sorts of trouble.

It seems unfair to say that the currency within which you buy a securities portfolio can have such a significant impact on its value. However if you think about it in a logical structure, you will come to the conclusion that it makes sense. Buying a security is somewhat different from buying a good.

A good will have its intrinsic value which is subject to wear and tear. However the value of a securities portfolio is entirely dependent on the speculative conclusion of the buyers. They can decide that they do not want to risk investing in your security which would result in a loss of value. The next day they might reverse their view and increase the price of your securities portfolio.

The implications for companies

On the other hand there is a persuasive argument that securities are shares in a company so that they can have an intrinsic value. This means that the currency fluctuations should not have a significant impact on the final value of the securities. While I accept this as a very moral argument, it is not persuasive enough from a purely economic standpoint.

Securities markets can be irrational but they are never emotional. If the business instinct says that you shares are going down, they will go down no matter how much moralistic pleading you employ. That is the nature of the beast when you are dealing with securities. Many people would like a different outcome but that is a very distant prospect.

Having established that we cannot detach currency denomination from the value of securities, we then move on to examine how the currency can affect the value. First of all if your currency is prone to fluctuations in value then the price of your securities in it will face some turbulence as well. The reverse is true although the levels of change may vary slightly. The obvious assumption would be that stronger currencies are the ideal for purchasing securities.

In most cases this is true but the dollar has faced some tough times over the past few years. In fact there was a suggestion that they might switch to an alternative international currency if the dollar failed to get its act together. Therefore you have to factor risk when you are choosing the currency that you are going to use to operate your securities.