Wednesday May 25, 2022

The new risk of targets will be lost

One of the obligations of an investment intermediary is to draw the customer’s attention to the risks associated with a mistaken investment. The term “new risk” usually appears among them. In practice, however, not only customers, but often even the broker does not completely want the principle of currency risk.

Risks that can cause losses, but so pinst me added profits. Risks, which are de facto only given a great deal affecting the overall result of the investment. People today, for example, struggle with dollar investment after the bitter experience of recent years, while often completely overwhelmed. Many investors do not know how many mistakes do not realize where in fact le mnov risk.

We can interpret it very simply: “If we sweat in Czech korunch, but invest in the US dollar, then we take the risk associated with the movement of the dollar exchange rate against the koruna.” Although this interpretation is true and accurate, it often leads to wrong mistakes. The bottom line is that we seldom realize in which we are actually investing.

Mnov risk in podlovch fund
If we have a fund investing in US stocks and denominated in US dollars, it’s relatively easy. As stated in, the investor takes the risk associated with the movement of the dollar exchange rate against the koruna. But let’s try now as an example of the share of the fund, the fund will be exchanged for Brazilian shares, its reference currency is the US dollar. The investor usually pays a pension to the fund for collection in Czech crowns. Because the fund is denominated in dollars, these pensions are subsequently converted into dollars. And this is exactly what the people are afraid of: “The dollar will fall again and delay.”

The dollar exchange rate does not play a significant role in this case. The share fund invests in Brazilian stocks, of course in Brazilian real currency. The value of the fund’s assets and the derived value of the share certificate is stated in dollars, but in fact the fund’s own assets are in Brazilian real.

Two exchange rates also come into play: between the real and the dollar and between the dollar and the koruna. What can we simplify and take into account that the main role is played by the exchange rate of real crowns. Or for the investor, among other things, two factors are important. The first is the value of Brazilian shares (owned by the fund) in real terms. The second is the exchange rate of the real to the koruna.

Currency risk for index products
Currency risk works very similarly for index products. For example, if we buy an open end certificate for the DJ Eurostoxx 50 index, we take the risk associated with the movement of the euro and koruna exchange rates. In the case of an investment in an open end certificate for Japanese REITs, we will most likely buy a certificate in euros (the vast majority of investment certificates are issued in euros). Pesto is for the total value of investments according to the exchange rate of the Japanese yen against koruna.

It is similar to a treasure trove with a fund of Brazilian events. The index of Japanese REITs, from which the value of our certificate is derived, is therefore potan in Japanese currency. The value of the certificate in euros is calculated on the basis of the value of the index and on the basis of the current exchange rate of the yen in euros. When selling the certificate, the value of the collection collected in euros is converted into crowns for the investor.

The new risk should not be underestimated, but on the other hand should not be felt. It is good to know the given investment instrument, in which the specific risk of sparks penetrate under a click and realize the basic context. In the first place, the instrument should be perfectly understood by the intermediary, in the concept of the entire client’s portfolio. The broker should then use the clients. It is firmly acknowledged that the professionalism of the broker will constantly increase, and so will their clients.

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