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Investment Opportunity in the US Dollar

A scenario for earning a higher yield.
By: Yosef Tastassa
Published: March 15th, 2011 in Business » Local
US DollarPic: NULL

QE2

Ben Bernanke's QE2 plan to recover the US economy is simple. Bernanke, Chairman of the United States Federal Reserve, prints US Dollars at an incredible pace. With the paper he prints, he buys US Government bonds from the public. The US citizens find themselves with available cash, so they spend it on whatever they want and can. This, according to Bernanke's philosophy, is boosting American’s slow economy and its export.

QE2 impact on the markets

Bernanke's QE2 began in November 2010 and it had an impact on two major "economic products":

a. The US Dollars has weakened against most world currencies. Today, in order to purchase one US Dollar all you need is approximately 97 Canadian cents.

b. The yield for a 10 year US Bond is around 3.35 per cent per annum.

The opportunity

Bernanke's QE2 plan will end in June 2011. According to some economic scenarios, once Bernanke stops printing US Dollars, the currency will "show some muscles" and start getting stronger against most world currencies.

One of the most likely scenarios is that the US Dollar and the Canadian Dollar will return to 1:1 exchange rate during the second half of 2011.

What can you do?

If you deposit your money for one year in a Canadian bank, based on today's interest rate your deposit will bear interest of around 1.7 per-cent per annum.

However, if you convert your Canadian Dollars to US Dollars at today's exchange rates and buy 10 year US bonds, you would find that in a year from now you earned 3.35 per-cent in interest and 3 per-cent for the exchange rates, a total of 6.35 per-cent not bad for a relative low risk investment.

The risk

The scenario, though previously proven, is only an economic analysis. We could experience another US economic crisis which would devalue the US Dollar even further as well as the US bonds. In this case, the conservative investor will lose a portion of his investment.

This article does not recommend investing in the capital market nor does it recommend investing in the US Dollar or in US Government bonds.

Related articles: US dollar, Canadian dollar, US Bonds, Markets
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A scenario for earning a higher yield.

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