FAQ: Investing in Foreign Currencies

1. Interest rate in Singapore is too low. Is it safe to invest in foreign currency deposits?

If you invest in a fixed deposit denominated in a foreign currency, you take the risk of fluctuation in the exchange rate.

For example, if you deposit a certain sum in New Zealand dollars for 1 year to earn 7% interest (compared to 2% in fixed deposit in Singapore Dollars), you will earn 5% more in the interest for 1 year.

At the end of 1 year, if the New Zealand Dollar depreciates by 5% against the Singapore Dollar, you will earn the same net return of 2%.

If the New Zealand Dollar depreciates by more than 5%, then you will lose on the deposit. If it depreciates by less than 5%, you will have a net return that is higher than 2%.

If the New Zealand Dollar appreciates against the Singapore Dollar, you will get a double benefit - from the higher interest rate and from the higher exchange rate.

It is difficult to predict the trend of the New Zealand Dollar. Even the currency experts are not able to predict the trend.

Foreign currencies can be volatile. It has the potential to move up or down 10% within a short period.

2. When is a safe time to invest in a foreign currency?

Investing in foreign currency will always carry a risk at any time.

However, if you have to pick a good time, it is better to invest at a time when the currency is lower than its recent peak.

3. How do I find out about the past exchange rate of a certain foreign currency?

Many websites in the internet provide this information. You can use the Google search engine and enter the currency codes of the Singapore Dollar (SGD) and the foreign currency. You will be able to access several websites that provide this information.
Here is a link to the yahoo.com finance website

4. Which bank offer the best exchange rate and interest rate on a foreign currency?

It is best to call a few banks and ask them to quote to you the exchange rate and the interest rate (for 1 month, 3 month and 12 months) for your investment. When you ask for a few quotes, you are likely to get the best rates.

If you have a special relationship with a bank, and is a considered to be a good customer, the bank is likely to offer preferential rates to you. It is still useful to call a few banks to check that the rate is the most attractive.

5. Which foreign currency should I choose?

You should choose one of the major currencies that are actively traded in the foreign exchange market, such as the United States Dollars, Euro, Japanese Yen, British Pound, Australian Dollar or New Zealand Dollar. This will minimise the liquidity risk.

6. Do I have to sign an application form to invest in foreign currency?

You can ask the bank to complete the form for you (if you are an existing customer) and fax it for your signature.

As the bank officer is familiar with the application form, they will be able to help you to complete the formality easily.