Economics Question

November 20, 2004 8:05 AM

"The Fed chief also seemed to be practically guaranteeing higher interest rates, saying that investors who weren't hedged against a rise were "desirous of losing money."."

these questions have been asked before, but any further thoughts on a hedge for dollar positions and increasing interest rates?
posted by specialk420 to work & money (5 comments total)

Specifically what sort of risk are you looking to hedge? Interest Rate or Currency?
posted by JPD at 8:35 AM on November 20, 2004

well - if one has purely cash holdings what is the smart call today to protect against further decline in the dollar, with a minimum of risk and maximum of flexibility/accessibility? everbank sounds like a fair option ...

furthermore, if one has a portion of ones 401k in a cash management account ... again, what is the best angle to protect the value against further slide in the dollar (which may be somewhat offset with the rise in interest rates..)?
posted by specialk420 at 8:42 AM on November 20, 2004

You should probably call up the manager of the cash fund and ask them this very same question.

At the consumer level, you can move your cash into investments like gold or real estate. At the institutional level, you can engage in a wide variety of risk-enhancing and risk-reducing strategies.

For a fun financial read, try The Money Culture or When Genius Failed. Slightly more highbrow (but still readable by anyone with high-school level math) are Fooled By Randomness and Against the Gods. If you really want a finance book, check out Options as a Strategic Investment, the K&R of derivatives.
posted by b1tr0t at 11:54 AM on November 20, 2004

Quick Answer:
Alot of the bigger banks offer multi currency accounts through offshore subs. In general you can expect a good online portal, the ability to swap between accounts and currencies, competitive fx rates, and ATMs. Additionally if you are a non-US citizen there can be some tax advantages. They normally require a decent sized minimum balance . I don't really want to advertise for any of them, but the names are fairly obvious.

As far as the interest rate risk part? Unless you have big floating liabilites, or a big fixed income allocation in your 401k don't really worry about it.

Unsolicited Commentary:
I presume to know nothing about your personal financial situation...but it looks like you are from the Upper Midwest.
As such the future liability (your retirement) that the assets in your pension plan is matched up against is US Dollar denominated. If you were to convert a portion of those assets into another currency you would not be creating a hedge, but rather adding risk to your portfolio. That risk is only worth taking if you believe it will add return. Ask youself what is the inefficiency in the market that you alone see that provides the opportunity to generate excess return from the fx market. And if you are confident in that idea, then go with it. But remember a mythically good investor is right 60% of the time. And you are making one bet.

On Preview: The Manager of your cash fund probably doesn't really care about the USD/EUR fx rate. He isn't paid to worry about that.
posted by JPD at 12:24 PM on November 20, 2004

I was looking around and thinking that perhaps some swiss franc or euro denominated bonds would be nice Problem is, I can't find any for sale in the US, and the ones I've found elsewhere say pretty specifically we can sell to anyone but americans. Anyone have any tips?
posted by jester69 at 8:13 AM on November 21, 2004