Monday, August 11, 2008

Earning Pounds and Euros While Living Off of Dollars

Author: Roland Frasier

With the ever decreasing value of the dollar compared to the ever increasing value of the Pound and Euro, it has occurred to me that it makes total and complete sense to be earning pounds and euros and living off of dollars.

Arbitrage has been around for years, in its most basic form buying something low and selling it again at a higher price. Wall Street has made many multi-billionaires out of financiers who really add no more value than providing a conduit for investors money from the investor to companies in need of capital.

The stock market, mutual funds, car dealerships, grocery stores and almost everything you can imagine works on this premise.

On a more advanced and speculative level the ForEx or foreign exchange markets work in the same way.

Currency trades at different exchange rates which are ever changing and even though the traders will try to sell you on the fact that the fluctuations are based on national economies, trade balances and gross domestic product, but a large part of the wildly varying fluctuations is a result of speculation in the market.

Now, if we think about it there are two ways to take advantage of the speculators and ever changing currency markets.

The first is to join the fray and become speculators ourselves. This has the disadvantage of requiring us to risk our capital in a very uncertain market, and one in which we have little or no competitive advantage or special knowledge to hedge our risk with.

The second is much more appealing... why not create cash flow in a foreign currency that generally trades at a higher rate than our own?

If we can succeed at doing this, then we benefit on a daily basis as our cash comes in from foreign operations already denominated in a currency valued higher than our own.

If our dollars are trading at $2.5 to every English Pound Sterling, then we instantly achieve a rough return on our currency of 2.5 times in a matter of a single day!

Annualize that return and the real return is staggering. 250% per day for 365 days each year results in a realized return of 91,250% per year!

We get that return because for every Pound we earn at that exchange rate, we get 2.5 dollars. Since we're living off of dollars while earning our income in Pounds, we reap the huge currency exchange benefit.

For these reasons, I am working on hard on developing both UK and EU income!

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