Foreign currencies, a profitable investment in the first half of 2009

Gabriel Niţulescu

Foreign currencies proved to be the most profitable investment in H1 2009. However, that leaves the problem of knowing which one to pick (we have considered the most important currencies on the international financial market: the American Dollar, the Euro, the Swiss Frank, the British Pound and the Japanese Yen, ed. note).

By the end of June 2009, an investor would have made 20% on the depreciation of the leu alone, by converting lei to British Pounds in December 2008. Had the investor in question also deposited the British pounds thus bought with a bank he would have also gained interest (generally the interest rate for British pounds has to be negotiated with the bank, as the only rates that are displayed by the banks are those for Euros and Dollars). The total return on this investment would have been about 25%.

Converting lei to Euros would have also beat the interest rate for bank deposits in lei. Thus, an investor who had bought Euros in December 2008 would have made 5.5.% by the end of June 2009 off the depreciation of the leu alone. However, had the investor in question opened a bank deposit in Euros at the end of December with a six month maturity, they would have made an additional 3.33%, whereas the average annual interest rate offered by commercial banks for 6-month deposits, was 6.66% in December, according to data by the National Bank of Romania. Thus for an amount converted to Euros and deposited with a bank, the yield would have been 8.8-9% for six months.

• Dolar vs. leu = draw

In turn, a bank account in lei would have yielded on average 7.29% over the course of six months, according to data by the NBR.

The yields of bank deposits in dollars and lei are rather close (5.1% gain off the depreciation of the leu and approximately 2-2.5%, the interest rate for the deposit in dollars).

The yield for Swiss Franks however, would have been below that of deposits in lei, as the Swiss Frank only gained 3.2% over the leu between December 31st 2008 and June 30th 2009, and interest rates for this the Swiss Frank are 1-2% lower than the ones for the Euro.

Betting on the Japanese Yen would have been the worst choice, as the Yen lost 1% against the leu in the first half of 2009. The interest rate for Yen hovers around 1%, assuming there were any commercial banks that would open an account in Japanese Yen for an investor that requested it.

If considering expert predictions that the exchange rate for the leu could remain steady until the end of the year, deposits in lei could prove a better alternative for the second half of the year. There are however other opinions which consider that the exchange rate for the leu could go as high as 4.5-4.6 lei/Euro, in which case investments in foreign currencies would provide a better return (in this case, the depreciation of the leu alone would yield 6-7%).