Expert: Gina Boykin - 8/8/2008

Question
Hi,
I'm from Puerto Rico and there is a bank here called "BAnco Popular", and they are promoting dinars as a good investment. However, I did some research and I read mixed reviews. One thing that they strees on is that you have to be patient with this sort of investments since the dinar is unstable at the moment. Is it still a good investment regardless? When or what dictates the rise of value for this currency?

The "BAnco Popular" says that the rise in the currency will begin by this september. Right now any Dinars that you get from this bank are insured but is it safe to buy it regardless (from a bank?) What would be my best choice?


Answer
I went to the Banco Popular website and do not see anything about foreign currency investments on their website to get more details.  In general, any investment in foreign currency is not insured.  Regular deposit accounts (savings, checking, CDs, money market) accounts should be insured by the FDIC; however, I don't see the FDIC symbol on their website so they may not be.  To double check whether your accounts are insured, go to http://www.fdic.gov/edie/

What do they mean when they say insured?  Insured by who?  Are they insuring against loss (I don't think so) or do they just mean that if the bank fails you will still get your money?  I'd go back for more details.

Investments are done at your own risk, and this includes currency investments.  The value of a country's currency rises and falls in relation to other currencies.  So, every country's currency is usually affected by what is going on in the global market.

Interest rates are a huge factor.  If interest rates rise, the country's currency is worth more because it becomes more attractive to put money in that country.  Think about it this way, if bank A gives you a higher interest rate on your savings account than bank B, wouldn't you want to move your money over to bank A?  The same goes for countries.  As interest rates decline, the currency usually declines as well.

Other economic factors also can affect a currency's value.  If the economy is doing well and people expect it to continue to do well, the currency will rise.  If the country is doing poorly, the currency will fall.  Buying currency is similar to buying stock.  You want to own something that you believe will become better, not worse.

If you chose to invest, one of the most important things you can do to select your investment company is to make sure that they are regulated by some sort of government agency.  The simplest way to find out who regulates the bank may be just to ask them.  Then call or visit the website of this agency and find out what they have to say about this company.  Based on this research, you can make your decision.