Forex Funds for Bulls and Bears

Rydex also has a CurrencyShares ETF in registration that will track the yen. It is expected to launch Feb. 13.

Steve Sachs, director of trading at Rydex, says currency ETFs offer investors another way to add international exposure with a single security, as opposed to picking a portfolio of foreign stocks or bonds.

And because CurrencyShares provide a basic level of yield, based on a country's overnight interest rate, they can sometimes outperform hard assets denominated in foreign currencies, he says.

Also, because exchange-traded funds, which are baskets of securities that trade throughout the day on an exchange, can be sold short, they also are good for hedging. Open-end funds can't be sold short.

"As far as the ETF business goes, I believe there are still a couple of areas of innovation and growth. Currency is one, commodities is the other," says Sachs.

Rydex also has a pair of open-end funds that follow a riskier strategy of using leverage to amplify the rise or fall of the dollar. The (RYSBX)Dynamic Strengthening Dollar (RYSBX) tracks 200% of the performance of the U.S. Dollar Index, while the (RYWBX)Dynamic Weakening Dollar Fund (RYWBX) tracks 200% of the inverse performance of the index.

These funds have relatively high investment minimums of $25,000 and are probably more appropriate for professional investors.

Profunds' (RDPIX )Rising U.S. Dollar (RDPIX) and (FDPIX)Falling U.S. Dollar (FDPIX) funds also track daily movements in the U.S. Dollar Index, but don't employ leverage.

The oldest currency fund is the (ICHHX)Franklin Templeton Hard Currency (ICHHX), an open-end fund that was launched in 1989 and has $384 million in assets. It invests primarily in high-quality, short-term money market instruments and forward currency contracts denominated in currencies of foreign countries and markets that historically have experienced low inflation rates.

Another open-end offering, the $54 million (MERKX)Merk Hard Currency Fund (MERKX), invests in hard currencies from countries with strong monetary policies in order to protect against the depreciation of the U.S. dollar relative to other currencies.

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