Forex and Investing

Do you want to make money when currency rates change? You probably do as you are interested in Forex trading. Today we would like to look at Forex and investing as a way to take advantage of varying exchange rates. Our focus is on the USD COP exchange rate, the exchange rate of the US dollar and Colombian peso. The value of the Colombian peso varies with the price of oil as Colombia is a big oil exporter. As the price of oil has fallen the peso has gone from about 1800 to the dollar in August 2014 to around 2600 to the dollar at the beginning of March 2015. Obviously anyone who sold pesos for dollars in August of 2014 has been pleased. Our thought is that perhaps it is time to take advantage of the low value of the peso before the Forex currency rate goes back the other way. And why invest in Colombia? What are the factors that could drive the value of the peso higher? What investments in Colombia make sense?

Forex and Investing in Colombia, Why Invest?

Colombia has a history of sound economic policies. An excerpt from the CIA World Factbook is useful.

Colombia’s consistently sound economic policies and aggressive promotion of free trade agreements in recent years have bolstered its ability to weather external shocks. Real GDP has grown more than 4% per year for the past three years, continuing almost a decade of strong economic performance. All three major ratings agencies have upgraded Colombia’s government debt to investment grade. Nevertheless, Colombia depends heavily on energy and mining exports, making it vulnerable to a drop in commodity prices. Colombia is the world’s fourth largest coal exporter and Latin America’s fourth largest oil producer. Economic development is stymied by inadequate infrastructure and an uncertain security situation.

The SANTOS Administration’s foreign policy has focused on bolstering Colombia’s commercial ties and boosting investment at home. Colombia has signed or is negotiating Free Trade Agreements (FTA) with more than a dozen countries; the US-Colombia FTA went into force on May 2012. Colombia is also a founding member of the Pacific Alliance – a regional grouping formed in 2012 by Chile, Colombia, Mexico, and Peru to promote regional trade and economic integration. In 2013, Colombia began its ascension process to the OECD. The annual level of foreign direct investment – notably in the oil and gas sectors – reached a record high of $16.8 billion in 2013, an increase of 7% over 2012. Colombia’s infrastructure requires major improvements to sustain economic expansion.

Colombia has lots of unexploited natural resources, lots of willing workers and today the price is right for investing in Colombia. Colombia needs infrastructure improvements. That is our point about Forex and investing in Colombia.

Forex and Investing in Colombia, whence the Colombian peso?

The value of the peso is tied to the price of oil. Last week we asked how high will the dollar go. Likewise how low will the peso fall? It all depends on the major economies and demand for crude oil. Japan is in and out of recession and China is looking at a new normal as its economy cools. Europe is starting a stimulus program that will hopefully put more folks back to work but will likely drive the Euro down. In short the peso will get worse if the price of all falls farther and it will rise with the price of oil. For the short term the peso and all investment denominated in peso are selling at bargain basement prices.

Investing in Colombia

If the idea of investing based on promising Forex exchange rates takes your fancy and Colombia interests you where do you look for investments? Visit Cartagena on the Caribbean. There is a lot of construction and other business activity as tourism is booing. Visit Bogota, the capital of 8 million people and commercial center of Colombia. Visit the coffee growing district to West of Bogota roughly within a triangle formed by Medellin, Cali and Manizales. All of these areas offer investment opportunities and reduced prices so long as the low peso lasts. And, if you bank you money in peso and do not find a business opportunity you can simply wait for the crude oil cycle to go back up and bring the peso back to the 1,800 to 1,600 to the dollar range and convert back to dollars with a fifty percent profit! Read our article, Trading the Colombian peso, written before the recent downswing for insight into what will happen when the price of oil and the peso go back up.