New Ways to Track Currencies

Exchange-traded fund investors got three more ways to play the currency markets earlier this month.

On Feb. 13, the CurrencyShares Japanese Yen Trust (FXY Quote) was issued for trading. Then on Feb. 20, the PowerShares DB US Dollar Index Bullish Fund (UUP Quote) and the PowerShares DB US Dollar Index Bearish Fund(UDN Quote) launched.

The CurrencyShares Japanese Yen Trust is managed by Rydex Investments, and it rounds out Rydex's portfolio of currency ETFs including the CurrencyShares Euro Trust(FXE Quote), the CurrencyShares Australian Dollar Trust(FXA Quote), the CurrencyShares British Pound Sterling Trust(FXB Quote), the CurrencyShares Canadian Dollar Trust(FXC Quote), CurrencyShares Mexican Peso Trust(FXM Quote), the CurrencyShares Swedish Krona (FXS Quote) and the CurrencyShares Swiss Franc (FXF Quote). The funds measure the value of the foreign currencies in U.S. dollars.

When a foreign currency strengthens, it takes more U.S. dollars to buy one unit of that currency. So if you believe that the U.S. dollar will weaken against one these currencies, buying the ETF for that currency gives you protection from a fall in the value of the U.S. dollar. Of course, if the dollar gains in value, these ETFs are designed to fall.

If you have the notion that the U.S. dollar is going to rise in value, but are unsure as to which foreign currency to bet against, then take a look at the PowerShares DB US Dollar Index Bullish Fund (UUP Quote) offered by Deutsche Bank and PowerShares Capital Management. This ETF holds a basket of the six currencies that make up the dollar index: euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

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