Weak Dollar? Be Wary of These Investments

When you listen to news items relating to the economy, the weak dollar tends to come up a lot. While the weak dollar can actually be good for certain businesses and investments, other types of investments are negatively impacted by a weak dollar. Here are a few investments that you might want to steer clear of if the dollar is weak.

Stock of Companies That Rely on Imports

When you are investing in the stock of a particular company, there are several things that you are going to want to look at. One of the most important things that you will need to look at is how heavily the company relies on imports to do business. For example, if you are thinking about investing in a manufacturing company that relies on another country to send them certain supplies for the manufacturing process, this is not going to be good if the dollar is weak. When a company buys the goods from another country, they are going to have to pay for the goods with dollars. When the dollar is converted into the foreign currency, it is going to be worth very little and it will take many dollars to make up for the lack of buying power. This can negatively impact the profitability for the company and also the investors in the company.

Certain Forex Pairs

Investing in the Forex market can be a good way to take advantage of fluctuations in the exchange rate between two currencies. If the dollar is weak, you are going to want to avoid purchasing any currency pairs that start in USD. In the Forex market, the first currency in the pair is the base currency. This means that if you are buying that pair, you want the value of that currency to increase in relation to the other currency. For example, you might buy the USD/CAD pair and hope to take advantage of the US dollar gaining value in relation to the Canadian dollar. However, if the dollar is weak, the Canadian dollar might be gaining value against it. This means that you would be losing money in this situation.

CDs

Another investment that you might want to avoid is a CD. Certificates of deposit are commonly issued at banks and financial institutions. These are marketed as a good way to invest your money between larger investments. However, the interest rates that they pay are very small in relation to other rates that you could get. By investing in a CD, you are most likely not going to be able to keep up with the inflation that is associated with a weak dollar. Instead of investing in something like this, you should put your money into another type of investment that is going to get you a higher rate of return. CDs can also create problems because you cannot take your money out of them early without having to pay a penalty.

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