[Derivative ABC] What Are Dollar Investment Financial Products?

[Image source=Yonhap News]

[Asia Economy Reporter Park Jihwan] Recently, the 'dollar,' known as a representative safe-haven asset, has been unable to escape weakness, leading to increased interest in dollar-denominated financial investment products. This is because buying dollars in advance when the dollar is cheap is expected to yield foreign exchange gains after the won-dollar exchange rate rises in the future.

On the 27th, in the Seoul foreign exchange market, the won-dollar exchange rate closed at 1,103.2 won per dollar, down 1.4 won from the previous day. This is a record lower than the closing price of 1,103.8 won on the 18th, which was the lowest in 2 years and 5 months since June 15, 2018, when it was 1,097.7 won.

As the dollar shows weakness, the popularity of related financial investment products is also rising. Currently, the easiest way for general investors to access dollars is by opening foreign currency deposits.

As of the 19th, the dollar deposit balance at the five major commercial banks?KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup?recorded 52.78 billion dollars (approximately 58.664 trillion won). This is the largest scale since statistics began in 2012. It increased by more than 30% compared to the 39.6 billion dollars (approximately 43.7817 trillion won) in dollar deposits at the five major commercial banks at the end of January. Foreign currency accounts are not taxed on foreign exchange gains and are protected up to 50 million won under the Depositor Protection Act.

There is also a method of investing in other derivative-linked bonds (DLB) based on the exchange rate as the underlying asset. With bond-focused asset management, principal protection is possible, and additional profits can be expected from the rise in the underlying asset price.

As the weak dollar phenomenon continues, there is also a notable flow of funds toward emerging market stock markets with sufficient growth potential rather than stocks in advanced countries such as the United States.

According to FnGuide, as of the 25th, the return on Latin America funds over the past month was 10.12%. Emerging Europe (9.5%), India (7.09%), Russia (7.34%), Emerging Asia (6.35%), and Global Emerging (6.11%) followed. These regions show significantly higher returns than the North America fund at 2.4%.

In particular, according to the Wall Street Journal (WSJ), funds flowing into funds investing in emerging market stocks and bonds reached a record high of approximately 11.96 trillion won (10.8 billion dollars). Investors believe that in the weak dollar market, emerging markets and Asian stocks and bonds have greater potential to rise in the future than advanced countries such as the United States.

On the other hand, investment in inverse products betting on dollar weakness requires caution. While profits can be made if the dollar value falls, from the perspective of risk versus expected return, the majority opinion is that investing in dollar inverse products at this point is not a good approach.

This content was produced with the assistance of AI translation services.