No. of Recommendations: 2
[)rmontUS:] ...specifically keep the shares in terms of foreign currencies, not to make incremental profit on the shares (in theory, there shouldn't be any once their value is translated into greenbacks), but rather to have a diversified currency holding in case the USD suffers some catastrophic trauma not reflected in other currencies.
=====
En anglais, por favor?
Is this like buying stocks on foreign stock exchanges using interactive brokers or a similar brokerage to convert your US dollars into that country's currency?
Further to OrmontUS's reply:
I completely agree with Ormont about actually wanting the foreign currency exposure as a hedge against devaluation of the other currencies I have holdings in (mostly USD and CAD). But if you just buy the Japanese shares with an Interactive Brokers account, without any forex trade, you will have a negative yen cash position which exactly offsets your yen stock position, which defeats the purpose of having some exposure to yen.
For instance, I just coattailed Buffett with a small stake in one of Buffett's five Japanese trading houses, Sumitomo Corporation in my case, 500 shares at about 3700 JPY/sh (roughly $25 USD), leaving me with 1,850,000 JPY worth of Sumitomo and cash position of -1,850,000. If I do nothing further, I end up having zero exposure to the Yen, and if the yen appreciates by 10% against the USD, I will still have a net zero position and no exposure to the yen. Of course, if my shares appreciate by 20% in the next year, then I will have 2,220,000 in shares and -1,850,000 in cash, so then I would have a small exposure to yen, but if my intention is to have my full Japanese investment exposed to yen, I have to get my yen position up to zero. So I would need a second trade, say USD:JPY, converting $12,680 to 1,850,000 yen and now I have -$12,680 USD and 0 JPY in cash, plus the Japanese shares. So if the yen moves up by 10% against the USD, now I will benefit from that currency movement(and of course, if it goes down by 10%, I will lose.)
On the other hand, I have to consider that interest rates on negative USD balances are much higher: with Interactive, they are 5.83% on the first $100,000 of margin loan, whereas they are only 1.88% on the negative JPY balance. So for the moment, I am doing it more like Buffett, and staying with the loan in JPY, removing the currency exposure not because I don't want currency diversification but because I would rather pay the lower interest rate.
dtb
