In the past, people have used the banks money to speculate or even their own while participating in rogue trading and it goes on much more than the public knows about because not everyone is caught (Daniels 2011). Liam Schiels, a financial planner sums it up quite nicely, "Even for an aggressive investor, we recommend only about 8 per cent of a portfolio should be in specific emerging market funds. The lure of short-term gains is not investing, it's speculating"(Shepherd 2011).
The risks can be very large, with some investments plunging up to 60 percent so the risks are great and investors have to be prepared to withstand such losses. Still, some are hypnotized by the lure of quick, steep, returns. "Trillions of pounds change hands every day and fortunes are made and lost in the blink of an eye on the foreign exchange (forex) market. Though it was established to allow international trade to take place, most transactions nowadays are speculative and made by investment banks and hedge funds" (Budworth 2011).
Risks range from political unrest in places like North Africa and the Middle East to devastating earthquakes and tsunamis which may change a market drastically in mere minutes. Plus, there are such vast unknown variables which are impossible to know. "The in-depth knowledge needed on countries not necessarily known for corporate transparency may be the biggest hurdle for private investors" (Shepherd 2011). In the future, analysts recommend that serious long term investors should spread out into areas such as Mexico, Indonesia, Nigeria and Turkey. "The markets across these countries have risen 117 percent since 2002, compared with a 47 percent rise across Europe"(Shepherd 2011). Data like that looks stable and reminds me what Edmund Burke said, "You can never plan the future from the past" which is true since we don't know whether a large disaster will hit Indonesia overnight or whether a large drug cartel massacre will occur in Mexico City tomorrow. It seems too much like gambling, to me.
REFERENCES
Budworth, David.
(2011, March 19). Foreign exchange is a risky business - even for
those in the know :Investment
It's the largest market in the world, but also the most volatile and the hardest to understand. David Budworth
explains how it works. The Times,72. Retrieved July 15, 2011, from ProQuest Newsstand.
(Document ID: 2296288841).
Daniels, J.D., Radebaugh, L.H., & Sullivan, D.P. (2011). International business. Environments & operations. (Rev. ed.). Upper Saddle River, NJ: Prentice Hall.
Shepherd, Alison. (2011, May 8). Can investors make a mint on the Mints? The Independent on Sunday, 94. Retrieved July 15, 2011, from ProQuest Newsstand. (Document ID: 2339892571).
Daniels, J.D., Radebaugh, L.H., & Sullivan, D.P. (2011). International business. Environments & operations. (Rev. ed.). Upper Saddle River, NJ: Prentice Hall.
Shepherd, Alison. (2011, May 8). Can investors make a mint on the Mints? The Independent on Sunday, 94. Retrieved July 15, 2011, from ProQuest Newsstand. (Document ID: 2339892571).
