New currency ETF debuts on AMEX

An exchange-traded-fund (ETF) is similar to an index fund in that both types of securities are designed to track the performance of the index to which they are assigned. The crucial difference, however, lies in the fact that there is no centralized market for mutual funds, whereas ETFs trade on exchanges, and hence, charge lower fees to investors. At first, investment companies were reluctant to create currency ETFs, because they weren’t sure if demand was large enough to justify such products. Since currency trading surged in popularity, a spate of new currency ETFs have been introduced, the newest of which is designed to track the performance of a composite of ten of the world’s most important currencies. Previously, this type of product was only available to wealthy investors. Now, anyone with a brokerage account can index in such a way, and would be smart to do just that, in order to hedge against the decline in any single currency. The Daily News reports:

The fund is managed by DB Commodity Services LLC. “DBV will offer investors easy access to the returns of the currency markets by following a highly developed index previously available only to very sophisticated investors.”

Read More: New Means of Access to Currency Markets

Swiss Franc Benefits from Volatility

As the Japanese Yen continues to enjoy the carry trade limelight, another currency fulfilling a similar role has been largely overlooked: the Swiss Franc. While not quite as low as rates in Japan, Swiss interest rates are still extremely modest by international standards. As a result, many carry traders have used the Swiss Franc in much the same way as the Japanese Yen, selling it short in favor of higher-yielding currencies. And, just as the Japanese Yen has begun climbing over the last few months, so has the Swiss Franc. The volatility in capital markets caused by the credit crunch is just as prevalent in forex markets, and is leading currency traders to eschew yield (high interest rates) in favor of stability, which benefits currencies like the Franc. The Economic Times reports:

Another trader with a multinational bank said with carry trades now coming under heavy pressure and banks being reluctant to fund investors entering into such trades, risk aversion seems to be taking over the global currency markets.

Read More: Swiss franc safe haven for carry trade