Forex Funds for Bulls and Bears

Both the bullish and the bearish dollar funds will use futures contracts (or short positions in futures contracts) linked to the six currencies. They will also hold U.S. Treasuries and other high credit-quality, short-term fixed-income instruments. According to a prospectus filed with the Securities and Exchange Commission, these bond holdings are expected to generate interest income of about 5.08% per year.

The total expense ratio for both funds will be 0.55%, or 55 cents for every $100 invested.

PowerShares already runs an ETF, the DB G10 Currency Harvest Fund (DBV Quote), that tracks a basket of nine currencies, the euro, yen, Swiss franc, British pound, Norwegian krone, Swedish krona and the Canadian, Australian and New Zealand dollars. The underlying index is designed to exploit the trend that currencies associated with relatively high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates. Launched in September, the fund has pulled in $195 million of assets to date.

Rydex has been rolling out a number of ETFs, called CurrencyShares, designed to track movements in single currencies. The first, and most successful is the CurrencyShares Euro Trust (FXE Quote), which launched in December 2005 and has about $940 million in assets.

The other six, which launched in June, include the CurrencyShares British Pound Sterling Trust(FXB Quote), CurrencyShares Canadian Dollar Trust(FXC Quote), CurrencyShares Australian Dollar Trust (FXA Quote), CurrencyShares Swiss Franc (FXF Quote), CurrencyShares Swedish Krona (FXS Quote) and CurrencyShares Mexican Peso Trust(FXM Quote).