It's clear that capital markets are being distorted by the desperate measures being taken by the

Federal Reserve

, measures commonly referred to as quantitative easing. In the short term this has caused big swings in both directions for commodities including precious metals and foreign-denominated investments.

Two recently listed funds play right into the theme and are each worth considering as part of a strategy to mitigate the consequences of what appears to be a willingness to debase the U.S. dollar as QE2 moves further along and as some speculate on whether there will be a QE3. All things being equal, if the dollar goes down then other currencies and precious metals go up.

A few weeks ago, ETF Securities issued the

Physical Precious Metals Basket Shares

(GLTR) - Get Report

fund which allocates an even 25% to gold, silver, platinum and palladium. This is a bullion exchange-traded fund which means the metal is in a vault and should track the spot prices as opposed to a futures-based product which is subject to the vagaries of the commodities futures curve. Each share in the fund represents 0.03 ounces of gold, 1.1 ounces of silver, 0.004 ounces of platinum and 0.006 ounces of palladium.

The advantage of this fund over the individual precious metals funds is that with the basket an investor doesn't have to be able to pick the precious metal that will do the best, in buying the basket he automatically will own the best performer but will also own the worst performer. Of course, anyone interested in picking an individual precious metal has plenty of choices including a full suite from ETF Securities --

ETFS Physical Gold Shares

(SGOL) - Get Report

,

ETFS Physical Silver Shares

(SIVR) - Get Report

,

ETFS Physical Platinum Shares

(PPLT) - Get Report

and

ETFS Physical Palladium Shares

(PALL) - Get Report

.

Another new fund playing into this theme is the

WisdomTree Dreyfus Commodity Currency Fund

(CCX) - Get Report

. The fund allocates about equal weights to the Canadian dollar, Australian dollar, New Zealand dollar, Russian ruble, South African rand, Norwegian krone, Chilean peso and the Brazilian real. The constituent countries offer access to various types of resources and commodities like oil, iron ore, copper, wheat and precious metals.

Specifically, this fund owns mostly treasury bills and creates the foreign currency exposure using repurchase agreements. Additionally the fund aims to pay out money market interest rates consistent with deposits made in each of the respective countries but due to the newness of the fund there have been no payouts yet.

Both funds should do well anytime the U.S. dollar goes down, but during periods of so-called risk-off trading in which the dollar rises both funds will get hit hard. Over one four-month stretch in 2008 the

Rydex Australian Dollar Currency Shares

(FXA) - Get Report

dropped 35% which is a huge move for a currency. And while expecting a repeat of 2008 is hopefully a long shot, big moves are within the realm of possibility and given the constituency of the Commodity Currency Fund I would expect none of the holdings to offer any offset to a pronounced decline.

Understanding the potential volatility is very important but the exposures offered by both funds have a place in a diversified portfolio. Fundamentally, the desperate measures being taken by the Fed put downward pressure on the U.S. dollar making the sort of protection offered by precious metals and commodity currencies a prudent exposure.

While the exposure is prudent, 2008 showed that the dollar can go up at any time for any reason when no one expects it to which makes the case for exposure to these funds to be moderate.

Nusbaum has no positions in any of the securities mentioned

.