Funds That Invest in Foreign Currency

• ETFs and ETN funds can be used to invest in foreign currencies. Hiroshi Watanabe/Digital Vision/Getty Images

  Foreign currency investing can offer two forms of profit to investors. If the foreign currency strengthens against the U.S. dollar, an investment in that currency will be worth more in dollar terms. Also, if interest rates are higher in the home countries of the foreign currency, an investor will earn some or all of the higher interest the other currency can provide.

Rydex CurrencyShares

• Rydex offers their CurrencyShares Trust list of exchange traded funds (ETFs) that hold specific foreign currencies in trust and the share value of the funds reflect the current foreign currency value. CurrencyShares Trusts are available to invest in the following currencies: Australian dollar, British pound sterling, Canadian dollar, euro, Japanese yen, Mexican peso, Russian ruble, Swedish krona and Swiss franc. All CurrencyShares Trusts have an expense ratio of 0.40 percent. Shares of the funds are valued at 100 times the dollar value of the currency.

iPath Exchange Traded Notes

• The iPath family of exchange traded notes (ETNs) are issued by Barclays Bank and offer several currency investment options. ETN shares trade on the stock exchanges and are similar to ETFs. IPath ETNs are available that track the euro, British pound and Japanese yen against the U.S. dollar. These notes will increase in value if the specific foreign currency increases against the dollar. Barclays also offers the iPath Optimized Currency Carry ETN. This fund selects from the highest yielding of the major currencies as tracked by the Barclays Capital Intelligent Carry Index. The individual currency ETNs have expense ratios of 0.40 percent and the Currency Carry ETN has 0.65 percent in expenses.

Invesco PowerShares

• Invesco PowerShares offers three different ETFs that let investors pick which direction they believe the U.S. dollar will move in relation to foreign currencies or invest in the carry trade of the highest yielding foreign currencies. The Powershares DB US Dollar Bullish Fund uses foreign currency futures contracts to be long the dollar against a basket of currencies. The PowerShares DB US Dollar Bearish Fund uses futures to take a short position against the dollar. The bullish fund will do well if the dollar is up against the foreign currencies and the bearish fund will do well with a falling dollar. The PowerShares DB G10 Currency Harvest Fund uses futures to go long the three highest-yielding major currencies and short the three with the lowest yields.