Profit From The Weak U.S. Dollar With Currency Plays And Other Strategies

by Silicon Valley Blogger on 2007-08-1614

A couple of days ago, I spoke of how the devalued dollar has caused American merchandise to become priced much more cheaply compared to similar stuff sold in other countries. This led to my sour graping whenever friends and family from abroad came by to visit in order to indulge in shopping marathons. Um yeah, it’s sure nice to be the spectator while everyone is cooing over their amassed loot, all at half price courtesy of the flailing dollar. The tourists buy up a storm while I watch — how exciting is that?

So I’ve blamed the faltering greenback for this situation. When I did so, however, discerning readers pointed out that I was complaining about something that may not necessarily be a bad thing. Well, they were right — it’s not as black and white as it seems.

So the basic question arises: is a weak dollar a good or bad thing?

In my mind, it depends on your perspective. As an American consumer, you may not be all too happy (as I am) about this state of affairs, but if you’re a multi-national conglomerate, you’d be jumping up and down with glee. Here’s a quick rundown of the Pros and Cons of the weak vs strong dollar:

Strong Dollar

Weak Dollar


  • Consumer sees lower prices on foreign products/services.
  • Lower prices on foreign products/services help keep inflation low.
  • US consumers benefit when they travel to foreign countries.
  • US investors can purchase foreign stocks, bonds, real estate at “lower” prices.
  • US companies find it easier to sell goods in foreign markets.
  • US companies find less competitive pressure to keep prices low.
  • More foreign tourists can afford to visit the US.
  • Foreign investors can purchase US stocks, bonds, real estate at “lower” prices.


  • US companies find it harder to compete in foreign markets.
  • U.S. firms must compete with lower priced foreign goods.
  • Foreign tourists find it more expensive to visit US
  • More difficult for foreign investors to provide capital to U.S. in times of heavy U.S. borrowing.
  • Consumers face higher prices on foreign products/services.
  • Higher prices on foreign products contribute to higher cost-of-living.
  • U.S. consumers find traveling abroad more costly.
  • Tougher for U.S. companies and investors to expand into foreign markets.

My point of view has probably been a little myopic, but I was merely sharing my views as a consumer who was feeling the pinch of the sliding dollar. Not to mention that there are potential risks that build up as our currency drops even further: a continuously falling dollar can trigger inflation and greater global and trade imbalances that may lead to a recession. But we’re not there yet so I won’t be chicken little just yet.

international investments, currency plays

I also received a few questions about whether we should even care about this, or whether there’s anything we can do to capitalize on these currency conditions. Here is one such question by reader JEM, who like many, are becoming enticed by the recent strong returns of foreign funds aided in part by the weak dollar:

I have a friend who is trying to get us to sell our US stock and only invest in international stocks and mutual funds. What are your thoughts on this?

To answer this question, I’m going to look into the various ways we can work things out to our advantage as both investors and consumers, since changes in our economic condition often supply us with opportunities that we can capitalize on if we’re keen enough to catch on to them. I’m actually taking up these suggestions as a response to our current economic climate.

How To Ride The Weak Dollar

Limit international travels or delay them to a more opportune time.
Our kids are quite young hence they’re at the age when traveling with them can be most “challenging”, especially when you’re dealing with close quarters in crowded planes. It’s therefore a good excuse to resort to day trips and staying within the confines of the nation for now so we don’t feel the effects of foreign exchange rates. We’ll continue to limit our spending to domestic transactions, at least, for the near term.

Invite overseas family and friends over more often.
We have lots of friends and family scattered all over the world who we’d like to keep up with. For now, we’ve asked people to come by and visit as it’s become very affordable for them to do so (while it’s the opposite for us of course). Despite my grumpiness over shopping, we do enjoy keeping tabs with those closest to us and so we have pretty much an open door policy.

Do some research before traveling.
If there’s no keeping you on domestic shores, then there are still good travel deals that abound if you know where to look for them. With some digging around, you may be able to cut down on your travel expenses. Check out our list of best travel sites for great deals.

Raise international holdings and stay in equities.
During the last several years, my international funds have been doing quite well, no doubt aided by the falling dollar. Of course, we don’t know how long this trend will last but it’s good to be aware of the opportunities that present themselves when economic tides shift. Along these lines, here’s my response to the reader question I presented earlier that asked whether one should dump U.S. stocks in favor of foreign funds: my solid answer is NO. If you do this, you’re simply timing the market. The optimal investment strategy is to keep a diversified investment portfolio with representation from various asset classes such as domestic and international equities, bonds and cash. Dropping an asset class from your mix will potentially raise your risk and could cause market-timing blunders. I wouldn’t do it as you can easily get whipsawed by the market, say if U.S. stocks stage a strong comeback while overseas equities stall. If you really want to play the foreign angle, you can simply increase your foreign allocation by some percentage you’re comfortable with. This is what I plan to do myself. As I’ve said before, I intend to raise our foreign holdings from 10% to 20%. (Note that this does not constitute financial advice as I’m no adviser, just a regular jane investor.)

Buy into other currencies.
I’ve become tempted to diversify into foreign currency. This diversification strategy has been in the back of our minds for a while now and we’ve been working to execute this plan. What’s great is that there’s a straightforward way to go ahead and do this, care of EverBank. This sounds like an intriguing idea which more people should look into.

Tip: Our EverBank review covers a lot of the details of diversifying into foreign currencies via certificates of deposit and safer accounts.

Keep some assets in foreign lands.
This may not apply to everyone but it particularly applies to people like us who have family abroad. If you have any family assets that need to be reunited with you one day, then you automatically have a dollar hedge. You can also extend this idea to “off-shore” type banking schemes, but I’m not so sure how “cool” an idea that really is since I’m not really too familiar with the concept. I only know that such schemes are associated with rich people who want to hide money somewhere else.

Buy American and limit buying of imported goods.
If you can avoid buying imported goods, then you won’t be paying for that currency exchange premium. So until things get cheaper, I may watch what I’m buying… except for that delightful Swiss chocolate.


Again, this may not have as much impact on your everyday living unless you’re an avid globe-trotter or someone fond of foreign imports. But if you’re after making that dollar (what’s left of it) stretch further, then hopefully, these tips could help.


The Pros and Cons of a Weak Dollar
Making The Weak Dollar Work For You

Copyright © 2007 The Digerati Life. All Rights Reserved.

{ 5 comments… read them below or add one }

boomie August 16, 2007 at 9:12 am

The foreign markets are taking a hit right now because they bought into our housing securities (unknowingly, because they were bundled with other securities-isn’t Wall St wonderful?)I wouldn’t be investing or increasing my investments in the foreign markets right now. Especially Europe.

This is going to take awhile to even out because the damage is global, not just local.

Yes, invite the family over from across the pond. So am I. My family is in Italy.

For Americans, it’s about time we buy products made here at home and stop the importing. Look at what China has done to us? Everything from there is being recalled, is dangerous, hurting our children and our health. Who knows how long this has been going on and now they were going to build our cars!!!!!! Buy American!

This may be the greatest, most wonderful, fantastic break for we American citizens and we don’t even know it yet! USA toy manufacturers have already seen their production increase by 40% and it isn’t even the holiday season yet!

WE should all see this as a time of great opportunity for we American folk. As for me, my next vacation is going to be the Grand Canyon. Can anything in Europe top that????? And I am looking for the ‘Made In America’ label. Our politicians have made a mess of this country. In a way, I am very happy with the way things are turning out.
We will get through this!

The Financial Blogger August 17, 2007 at 4:33 am

For being a Canadian, I can tell you that having a weak dollar is not so bad 😉
I think the major problem for CAN is that their economy was built considering that we had a weak dollar and it was the opposite situation for the US. Now, the situation is shifting and our both economic system will have to be modified accordingly. While the currency market is changing faster than our economic system, we might both face a recession.

Quite a complex issue!

Eric August 17, 2007 at 5:59 am

You would think that a weak dollar, and the influx of foreign investors investing in the US and our goods, we should have more cash being pumped in to our economy and a natural balancing out of the dollar?

Silicon Valley Blogger August 17, 2007 at 9:04 am

There’s really a lot going on in the global landscape and it’s hard to sift through what’s good, what’s not. From the ground floor level, I only notice that traveling has become quite an expensive pastime. I do acknowledge that things can and should balance out… so let’s hope it does so without too much turmoil.

I’ve heard a lot of arguments about how we may be headed for a recession due to many factors pushing the economy that direction: the housing slump, subprime lending crisis, weak dollar, slower growth. With all factors working together, anything can be the final straw. Again, here’s hoping our economy can navigate through the turbulence (relatively speaking) — I personally believe it’s not a big deal, just short-term pain.

John August 17, 2007 at 4:54 pm

I’m looking to buy international funds as well. I read that there are funds that hedge currency risk to minimize the effects of currency swings, and those that don’t. In this case, buying into funds that don’t hedge would be the better option if you want to have true global exposure.

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