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How to Benefit When Your Local Currency is Depreciating, and Avoid Losses

Currency depreciation

Economy

How to Benefit When Your Local Currency is Depreciating, and Avoid Losses

Many business owners, managers and others who in the slightest way transact in foreign currencies often get drastically disturbed when their home currency depreciates against a foreign currency. This is understandable because businesses and individuals often have exposures in foreign currencies. The impact of a depreciating local currency can be excruciating to a business, and an individual’s income as well. It is a threatening situation and most businesses (often bigger businesses) hire the services of experts to manage their forex exposures.

As business owner or a salaried worker, you can also minimize the effects of a depreciating home currency and even take advantage of it to make money, rather than lose money.

Minimize Local Assets

The value of your assets in your home country, if denominated in local currency, can lose value considerably when your local currency falls against major foreign currencies. For example, if you live in Ghana and deposited GHc100,000 in the bank at 20% at a time when a dollar was exchanged at 3.0, then your local asset is valued at US$33,333. A rise in the exchange rate from 3.0 to 4.0 means your local currency denominated asset is now worth only US$25,000.Even when you add the expected interest rate to the principal, you’re still not better off.

To protect yourself, you minimize the amounts of assets you create in your local currency, if your currency is likely to depreciate fast against other foreign currencies. Instead, you can buy foreign denominated assets and benefit from both the appreciation of the foreign currencies and the accompanying interest on the investment. There may be regulatory restrictions in some countries in buying foreign currency denominated assets. Do find out before you take action.

Target Foreign Income

When your local currency is depreciating against foreign currencies, it also implies that those foreign currencies are strengthening against your country’s currency. The value of your income is directly affected when your currency is depreciating. So, in dollar terms your salary is shrinking if your home currency continues to lose value to the dollar. Since it’s not within your individual power or that of your business alone, to strengthen your home currency, you may as well take my advice. One simple way is to create income streams in foreign currency. You can export products, or learn to make money online. Both ways can earn you foreign currencies, and since those foreign currencies are strengthening against your home currency, you’ll be on the winning side.

Seek High Interest Bearing Assets

One of the surest ways to survive a depreciating local currency is to seek to be covered by high interest on your local investments. To maintain the same dollar value or Pound value of your local currency-denominated investments, you’ll need a high interest rate that will compensate for the depreciation of the local currency, and in addition add some real returns to your investment. In some countries for instance, the annual depreciation of the local currency was almost 30% whilst savings and investment rates were just within the 20% to 30% range. Obviously such investments would either lose or maintain their value after the investment period. Choose investments that yield superior returns, not just inflation-beating rates.

Trade Currencies

Trading currencies gives you an opportunity to hedge against any expected forex losses or forex-related losses. Take an opposite position in your trades to offset any possible unfavourable movements you expect. If your local currency is bound to depreciate against the dollar or the pound, for example, you can buy the pound or dollar in your forex trade to offset your losses. But first, learn the basics of forex trading online. Not only can you use it to minimize your business losses, but also make money. Forex trading isn’t as obscure as it seems.

Read How to Make Money Trading Forex Online

A depreciating home currency is generally viewed as discouraging local business, weakening purchasing power, wiping out the value of savings, as well as leading to rising interest rates in the home country. But with these guidelines, you should not join the majority of people screaming about a fast depreciating local currency.

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  1. Pingback: Don’t Do these Transactions with a Forex Bureau

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