Investing in Icelandic bonds

As the US dollar continues to fall, American investors are looking to place their money abroad and bonds issued by the government of Iceland are becoming an increasingly attractive option.

Bonds issued by the Icelandic governments have promised and delivered excellent rates of return in recent years. Some bonds paid yields as high as 14.3 per cent.

In addition to the payout, investing in Icelandic bonds is possibly a good way to play the currency markets, especially if the dollar continues to fall. Potential currency gains are just another reason why Icelandic bonds are appearing very attractive to American investors right now.

Before jumping into the market, investors should consider two things. The first is the volatility of the currency market. In order to invest in an Icelandic bond, American dollars must be converted into Krona. In order to collect the bond’s worth, those Krona must be returned into dollars. If the American dollar takes a turn for the better, the loss in currency conversion could eat up your profit margin.

In addition, you will be charged currency fees to make the conversions between dollars to krona and back again and paying fees also eats up profits.

Many financial advisors do suggest investing in foreign stocks, whether in Iceland or elsewhere as a means of diversifying a portfolio and if you’re not putting all your eggs in one Icelandic basket, it can be a good idea, particularly if it is done for the long term. Over a long period of time, the rise and fall of currency tends to even out, meaning that you can enjoy the returns from an investment over time, keep the stock while the currency is bad and sell when it works in your favour.

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