During this earnings season, many companies have reported negative results from foreign-currency impacts, as a strong dollar has held back earnings power overseas. But more recently, the dollar has started falling in value. Smart investors want to know how to profit, and currency ETFs are one way to get exposure to the foreign-exchange market.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at currency ETFs. Dan notes that ETFs are generally set up to correspond to round amounts of foreign currency. For instance, each share of CurrencyShares Euro (NYSEMKT:FXE) has a value that corresponds to approximately 100 euro, while CurrencyShares Japanese Yen (NYSEMKT:FXY) shares have a value of about 10,000 yen. Dan further observes that these currency ETFs act like money market funds in their particular currencies, and so if interest rates are high in a particular country, then its currency ETF will often pay a dividend. That's the case with WisdomTree Brazilian Real (NYSEMKT:BZF) and CurrencyShares Australian Dollar (NYSEMKT:FXA).
Dan concludes the video by stating the risks and rewards of currency ETFs, noting that the foreign exchange markets can be volatile and unpredictable. For those looking for easy-to-understand exposure at reasonable costs, though, currency ETFs can be a good way to take advantage of a falling dollar.