Forex--A Different Type of Investment
from Summer 2004, Vol. 5, No. 2
By Salih Acarbulut

It is 60 times bigger than the U.S. stock market and 10 times bigger than all the world’s stock markets combined. With an average volume of $1.5 trillion a day, it is open 24-hours a day, and is bi-directional. Am I getting your attention yet? Well, that’s the Forex (Foreign Exchange) market—the largest profit generator to the world’s largest banks, year after year.

With the signing of the Bretton Woods Agreement in 1944, the single largest financial market had been developed. The Interbank Foreign Exchange as it was called, was created to meet the daily currency needs of the world’s governments, largest international corporations, and financial institutions, due to the world commodities, such as gold and oil being priced in U.S. dollars or gold backing of their currency to guarantee their trade until 1968. In the early 70’s the gold backing of the U.S. dollar was removed and the floating of exchange rates was initiated. In plain talk, it was the last time a dollar was really a dollar.

Just like any other price, the currency’s exchange rate is fundamentally a product of supply and demand. As we have noticed lately, the only thing we hear is the U.S. dollar has been losing value against the yen and the Euro. Actually since 1968, the dollar has been losing value against the yen and some other currencies. One dollar was about 370 yen in 1968 and now it’s about 105.

Any currency’s value reflects the total economic value of a country against others. Case in point, Japan vs. USA. Even though Japan has had a major banking crisis for the last twelve years, due to it’s large trade balance and the enormous amount of U.S. dollar reserve it has gained about 20% against the U.S. dollar. Will it continue? It most likely will if the U.S. budget deficit and government borrowing continues. We have gone from being the largest lender in the late ‘70s, to the largest borougher by the end of the ‘90s. As a matter of fact, we would need $1.5 billion in fresh money coming in daily from China, Japan and the oil exporting countries, just to sustain our economic growth.

Forex is the most leveraged investment for profit potential, in most cases 1-100, meaning a $1,000 contract controls $100,000 worth of the other currency. Also, it is bi-directional. There is no 'buy low,' 'sell high.' One may buy Japanese yen if it’s getting stronger against the dollar, or sell the yen if it’s losing value against the dollar. Being an electronic transaction, the movement in this market could be quite volatile. Most brokers and bankers do not have the training or the facilities to offer Forex as an investment. Seminars are regularly held to educate interested investors. You may also further investigate Forex on the Internet, but you should contact an experienced investor before investing any funds. The minimum investment is usually $5,000.

Salih Acarbulut is a financial planner and investment advisor with 23 years of experience in investments, insurance and sales that includes consulting and sales training in different countries. He has studied international finance and marketing in Turkey, Germany and the United States. The multi-lingual Acarbulut is the owner of Legacy Financial Management LLC in Chattanooga, Tennessee.