Do you often feel that itch to check how the peso is doing? Are you dismayed every time the peso strengthens (thanks for the correction, Gretch!) further against the dollar, worried that your earnings in dollars are losing value?
Are you exclusively focused on the dollar?
Are you still depending exclusively on one type of investment like real estate investments, or time deposit placements etc?
Do you want the government to intervene in the market in the event of another financial crisis?
If you answered yes to any of these questions, columnist Noet Ravalo says in his article due to come today that you have not learned your lessons from the 1997 Asian financial crisis.
Financial journalists would like to the think that the market hangs on their every word and that every hiccup in the foreign exchange market would end up as a conversation piece as people go out to have lunch.
Noet says we should stop obsessing about the foreign exchange rate (ouch, less readers!). If you prepared yourself by getting into forward transactions with banks, you can protect yourself from the dips and gyrations of the foreign exchange markets. I will have to check with banks if they offer these instruments to individual clients, though. But it is an option that’s worth considering.
Correction: Clarified this forward rate thing with Noet further, and he says he did not mean the forward transactions that banks brag about among themselves. What he was referring to was the implied forward rate which gives some indication of future trends based on existing parameters like interest rates and foreign exchange rates.
Did some more digging and I found this website that explains it further. Warning. Technical jargon alert. No avoiding it.
The Implied Forward rate is very important for anyone wishing to take a position in the markets. By definition, all speculative views on the market are only profitable when the rates that occur are different than those implied. Therefore when looking to establish a position, it is important to compare your view with the Implied Forward. If it is the same, there is no opportunity to profit from your view. The difference between the current Spot rate and the Implied Forward is known as the amount “built in” to the market.
Noet also says you should widen your horizon to beyond the US dollar. A lot of MoneySmarts readers are getting interested in the euro and I have seen the mutual fund industry react to that by offering euro funds.
One of the things I learned from Noet’s article is to take advantage of the various financial instruments out there to preserve the value of your portfolio. Dependence on one or two types will not protect us from more financial crises – and you have to accept the fact that the world is not immune from them. The China bubble for example is already putting people at the edge of their seats.
This article brought back memories for me. At the time of the crisis, it felt like the end of the world as we knew it. And yet, look at us, 10 years from now. We are wiser and more cautious, but more hopeful. Good virtues that would help us deal with the next crisis.
October 5th, 2007 at 11:31 pm
can anybody please explain why should anyone be happy when the peso gains against the dollar when prices of commodities are still going up instead of the going down? Isn’t that kindda weird?
July 26th, 2007 at 2:32 pm
[...] inefficiencies creating fake demand like monopolies, poor taxation and, yes qwerty, improper government intervention like central banks defending [...]
July 25th, 2007 at 4:16 pm
@querty,
“what it means from a personal finance perspective when governments don’t intervene in the market.”
it simply means that your investment choices and decisions will only be affected by market forces. Example, If your investment is in dollar and the government didn’t intervene with our exchange rate then it is your choice to stay in dollar or shift to pesos.
July 25th, 2007 at 12:33 pm
yey!!! blockquotes do work in comments here!!!
July 25th, 2007 at 12:30 pm
@salve: the francswiss stuff turned that ugly huh? regarding the comment anyway, no big deal really.
as i said i encountered a lot of material regarding asian economies a decade after the asian fiscal crisis as early as late last year and a lot of them mentioning government intervention somewhat conflicts with the idea of going against it. commonly mentioned in this regard is China.
take for instance Prof. Walden Bello’s Globalization in Retreat posted in the Inquirer, (or was it still Inq7 then?) early this year. in it he writes:
am i missing something here? i know the piece comes from an international economics and political perspective with globalization primarily in focus so i might as well ask what it means from a personal finance perspective when governments don’t intervene in the market.