Investing in Foreign Currency

Some people like to invest in foreign currencies to earn a higher yield. For example, they can earn 3.1% on Australian dollars (1 month deposit) compared to 0.2% on Singapore dollars. However, they have to consider the spread of 1.7% in converting to Australian dollars and back. The higher interest rate is taken away entirely by the spread for short time deposits.

You can reduce the spread to 0.1% by investing in Australian dollars through the forex trading market. For example, if you wish to invest in AUD 50,000 you can buy the same amount in the forex market. Although you have to put in a margin of only 2%, i.e. AUD 1,000, you can keep the remaining 98% of the invested sum in Singapore deposit and enjoy the same investment result.