Lesson Five Free Course on Currency Investing
By
Gary Scott

Most investors are always alert for ideas on how to gain profit. Yet few know much about currency investing basics.

The first rule of currency investing basics is to look at risk as well as potential profit. Only when you face potential rewards and risks, can you make a truly sound currency investing basics investment decisions. This special report begins by looking at ways to view currency investing basics risk. Then future lesson look at what I have written about the Multicurrency Sandwich over the past five years and some Multicurrency history that goes back a decade.

This fourth lesson continued looking at currency investing basics risk assessment data I sent my readers about currency investing basics in 1993. this lesson continues.

The key I was getting across in that 1993 message was if an investor cannot afford to lose at least part of your original investment, then you should avoid this opportunity. Be sure you understand the risks and can afford to accept them before you use this tactic.

Currency Investing Basics Risk Loan Ratio

There are ways to reduce the risk.

Currency Investing Basics Risk Reduction #1: Reduce the amount (in percentage terms) that you borrow.

"The risk and reward of this idea are very much affected by the loan to investment ratio of the portfolio. So far in this report we have looked only at portfolios with a four to one loan ratio, which is a typical maximum ratio banks allow. However one usually borrows less in relation to the amount invested. Instead of borrowing four dollars for every dollar one can borrow, three or two or one or really any ratio between four and one.

Currency Investing Basics Risk Reduction Projection borrowing three times the amount invested.

PERFORMANCE PROJECTIONS WITH THREE TIMES LOAN TO INVESTMENT RATIO

$75k Mexican Peso Yield 12.00% less 3.87% 8.13% $6,097

Extra Earned From Loan $6,097

$25k Mexican Peso Yield 12.00% $3,000

TOTAL PROJECTED RETURN ON $25,000 INVESTED IS 36.38%% or $9,097

Borrowing three times the amount invested greatly reduces risk of sudden foreign exchange loss.

A two to one loan ratio is even safer and has even less profit potential as the projection below shows. Each reduction of loan to investment reduces potential profit and potential loss.

3 to 1 2 to 1 1 to 1

Spread Forex Total Spread Forex Total Spread Forex Total

5% yen fall 36.3% 14.1% 50.5% 28.2% 9.5% 37.3% 20.1% 4.4% 24.5%

10% yen fall 36.3% 27.2% 63.5% 28.2% 18.1% 46.3% 20.1% 9.0% 29.1%

15% yen fall 36.3% 39.1% 75.4% 28.2% 26.9% 55.1% 20.1% 13.0% 33.1%

5% yen rise 36.3% -15.7% 20.6% 28.2% -10.5% 17.7% 20.1% -5.2% 14.9%

10% yen rise 36.3% -33.3% 3.0% 28.2% -22.2% 6.0% 20.1% -10.4% 9.7%

15% yen rise 36.3% -52.9% -16.6% 28.2% -35.2% -7.0% 20.1% -17.6% 2.5%

These are the choices. Investors should match the risk to their needs. The four to one loan ratio has 97% profit potential, but could lose all. The one to one ratio offers 33.1% in its upper range but chances of loss are far smaller. Even a 15% yen rise would still leave 2.5% profit over a year.

See next lesson how to choose your ratio.

Gary Scott

Join Gary Scott and Jyske bank at an International Investing and Business Course. Details are at GaryScott.com

To learn more about Gary Scott go to GaryScott.com

To understand currencies you need to understand countries.

Learn more about Mexico and Japanese relations

Jyske Bank specializes in currency investing basics. Attend Jyske investing seminars in Copenhagen. Details available from Thomas Fischer at FISCHER@jyskebank.dk