Buying foreign currency for investment involves exchanging one currency for another with the expectation of profiting from changes in their relative values. This practice, known as foreign exchange (forex) trading, allows investors to diversify their portfolios, hedge against currency fluctuations, and potentially generate returns.
Investing in foreign currency can provide several benefits. It can help reduce portfolio risk by diversifying investments across different currencies. Currencies tend to perform differently during economic and political events, so holding a mix of currencies can help balance overall portfolio performance. Additionally, foreign currency investments can act as a hedge against inflation. When the value of one currency falls, the value of another may rise, potentially offsetting losses in other investments.