Currency Profitability

by | Oct 2, 2003 | Archives

This is a continuation of the last two day's message…so don't think it is a repeat!

Tuesday's message told about a reader who wrote “Got a call from Jyske Bank that Instrumentarium stock is being bought at a jump of nearly $5.00 per share over today's price until tomorrow. What's going on? Do you recommend selling my shares?”

Yesterday, we talked about the importance of knowing when to sell. Today let's learn how currency fluctuation can be the most important aspect of investing.

First, let's review what we talked about in yesterday's message…..

“After receiving the note above from my reader and sharing my concerns with readers that they should not use these messages for market timing, I wrote to my banker and asked exactly how the two shares I have written about and bought have fared.

“We can learn a lot about currency fluctuations when we review Jyske's reply below.

“You bought six shares of Maersk at a price of DKK 59,100for DKK 354,600. The stock split 2:1, so now you have 12 shares plus you received DKK 330 per share in dividends. The price of the Maersk today is DKK44,900 per share. The net value of your Maersk shares are today including the dividends received: 44.900 x 12 = 538.800,00 + (6 x 330) = 540.780,00

“Your profit on the stock in DKK 186.180,00 is equal to 51.94%.

“You bought the Jyske Bank shares at DKK 193,00 today Jyske Bank is quoted at DKK272,00 with a profit of 40.9%.”

Now in today's message let's factor in the DKK (Danish kroner)appreciation versus the US dollar. A year ago it took 7.59 Danish kroner to buy one U.S. dollar. Today it takes only 6.48 Danish kroner to buy one U.S. dollar. This means that to buy the six Maersk shares at DKK354,600 cost US$46,719. Today it is worth (with dividends received) DKK540,780. This at a 6.48 forex rate buys US$83,453 or a profit of US$36,734. This is a 78.62% profit in dollars as compared to the 51.94% Danish kroner profit. The currency fluctuation increased the profit by more than 50%!

Ditto for the Jyske shares. The Jyske shares at DKK193 cost US$25.42 cents at the DKK7.59 forex rate. Today the DKK272 price brings US$41.97 at the current 6.48 rate.

In addition the Danish kroner (which is linked to the Euro) was even much stronger not long ago and I locked in even higher profits by borrowing Swiss francs at 1.62%. A recent message at explained how I had been long Euros, but recently borrowed Swiss francs to reduce the risk of this as Euros (perhaps temporarily) are falling versus the dollar, but rising against the franc. Have a professional help you stay abreast of currencies the year through. Sometimes a strong currency in January becomes weak in July.

Now to answer my reader's question should he sell his shares or not, I would like your opinion so we can share philosophies, learn and grow. Read the last two days of messages with this one and let me know what you think. We'll share everyone's opinions next week.

Until next message may all your currencies be strong.