If you are investing in companies in the US that mostly have domestic business, you are more likely to suffer from dollar devaluation than those that are large exporters.
For instance, exports account for approximately 38% of Microsofts revenue and in dollar terms, those exports will rise as the dollar falls as their products are priced in foreign currency in the markets in which it sells. Microsoft export revenue will rise as the dollar drops giving it a kind of inbuilt hedge against the dollars demise.
Obviously Microsoft have costs in foreign countries too - such as India which need to be taken into account but if you can stick with companies that export a lot - you are better off from a currency perspective.
I understand what u r saying but though valuable advice, its not related to my question. See, I am not asking for advice about which companies to pick, companies which will suffer from or gain from dollar devaluation. Heck, dollar devaluation though likely may npt happen for the time frame I will be investing.
I just want to hedge so that I dont lose from $ devaluation even though by hedging I wont gain from appreciation.
I want to invest in domestic companies whose stock price i think will rise (lets say, their profits wont be affected by $ devaluation) and i want to protect my own gains (and capital) from devaluation. I can do this by hedging. I am asking for advice on the best way to do that.
BTW, I still appreciate your advice. thx.
Depends on your broker. But you're going to take the hit at some point in the conversion from any currency to any other.
How so? Cant I use forex options to hedge against $ devaluation like i mentioned in my first post. Call options on GBPUSD should take care of any $ devaluation.
I only pay the premium on those options. If my gains are decent, its a small price to pay.
The smart thing is to trade in the currency you can use...
But when I but US stocks, I am also investing in $. I cant buy US stocks with GBP. I need to trade in US markets because of many obvious benefits. Moreover, I have a good track-record trading them.
