EURO CRISIS RATTLES THE MARKETS The eurozone crisis is affecting currency rates in three ways, Hahtela explains. First of all, the euro is considered a less attractive currency, in other words it is losing value. Secondly, the crisis increases general uncertainty and risk aversion. "For instance, investors are trying to get rid of developing countries' currencies, which are associated with greater risks. These include the Russian rouTRYING TO PREDICT ble, for instance," says EXCHANGE RATES IS Hahtela. GAMBLING. Thirdly, the eurozone crisis has set off speculation as to which currencies would be safe alternatives in the event that the euro collapses. "For instance, demand has increased for the US and Canadian dollars and the pound sterling," he says. At the moment, though, there are few safe havens. All the major western currencies are overshadowed by economic worries. In Europe, the Swiss franc has been hovering at record highs, as the nation's economy is stable and relatively independent of the eurozone's upheavals. Investors are also interested in bonds denominated in oil-rich Norway's kroner. The Singaporean dollar is one of Asia's most stable currencies. In Latin America, investors are focusing on the Brazilian real because of the country's strong economic growth. EXCHANGE RATES IMPACT PROFITS Small investors must take account of the risks associated with currency exchange rates when investing in bourses outside their own currency areas. In such cases, the results are determined not only by share values, but also by changes in exchange rates. "For instance, if you invest in US stocks from the eurozone and the dollar strengthens, that will improve your result, whereas a weakening of the dollar will diminish it," explains Hahtela. Hahtela points out that an investor can also seek to profit from the ups and downs in exchange rates by, for instance, purchasing currencies into a special foreign currency account or by acquiring currencydenominated shares or interest products. "There are also currency-linked notes which make it possible to profit from the currency markets while keeping one's capital safe," he says. Lindholm discourages small investors from speculating in currencies. "Trying to predict exchange rate changes is gambling. If you want to gamble, it's better to choose some other game, like the lottery, for instance," he says. EXPORT COMPANIES VULNERABLE TO CURRENCY RISKS Companies that operate in various currency areas must calculate on a daily basis how much their foreign receivables are worth in their own currency and what they will have to pay for import goods. Rate fluctuations can create both financial advantages and vulnerabilities. "A currency rate that's moving in the wrong direction has a negative impact on a company's operating margin. At the risk of oversimplifying, a ten per cent change in a currency exchange rate can put a ten per cent dent in profits. Currency exchange rates can easily change by a percentage point within a day," Hahtela notes. An accumulation of currency losses can have serious consequences. A firm's key figures may weaken, financing costs rise and investment opportunities dry up. "A company that does not protect itself against currency risks is simply gambling," stresses Hahtela. FEBRUARY 2012 BLUE WINGS 55 ENG
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