3

I was just reading this article.

Does converting USD to say Euros help pad oneself against a potential US stock market crash?

While I understand that a US crash would affect the rest of the world and perhaps the Euro would go down, but hypothetically if there were a crash would the Euro to USD exchange rate go up and thus at some point I could change a balance back to USD and not feel as much "financial pain" as I would otherwise?

  • 2
    That article looks a little fishy – karancan Jun 5 '14 at 13:11
  • 1
    It could help reduce your loss, but there would likely still be a loss. – Chris Cudmore Jun 5 '14 at 14:43
  • The tradeoff is that now you have EUR, and unless you spend a lot of time in Europe, you will need to change them back to USD if you ever want to spend them. So now you run the risk that EUR will devalue relative to USD (regardless of changes in the US stock market). Just sticking the cash in a bank account in USD would be less risky. – dg99 Jun 5 '14 at 17:24
  • @Karancan - yes, I began to think a bit so also after I did some more research on similar articles (not so much found) and of course the "... rumors of ..." as mentioned in the article not quite hard facts. – Relative0 Jun 10 '14 at 9:16
4

If the equity market in the USA crashed, its very likely equity markets everywhere else would crash. The USA has a high number of the world's largest businesses and there are correlations between equity markets.

So you need to think of equities as a global asset class, not regional.

Your question is then a question about the correlation between equity markets and currency markets.

Here's a guess: If equity markets crashed, you would see a lot of panic selling of stocks denominated in many currencies, but probably the most in USD, due to the large number of the world's largest businesses trading on US stock exchanges. Therefore, when the rest of the world sells US equities they receive cash USD, which they might sell for their local currency. That selling pressure would cause USD to fall. But, when equity markets crash there's a move to safety of the bond markets. The world's largest bond markets are denominated in which currency? Probably USD. So those who receive USD for their equities are going to spend that USD on bonds. In which case there is probably no correlation between equity markets and currency markets at all.

A quick google search shows this kind of thing

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.