The Dollar in Decline

For risk-averse investors, this is safer than trying to play the currency markets, which can be volatile. Currency values can fluctuate with wars, trade deficits, inflation, interest rates and government whims.

Annette Simon, a financial adviser with the Garnet Group in Bethesda, said investing in currencies or currency funds "is not the kind of thing we would encourage for individuals."

"I think you can get the same kind of diversification by investing in international stock and bond funds, and letting the funds work out the currency fluctuations," Simon said. "Betting on the currency itself, to me, seems risky."

Many U.S. companies and foreign stock funds hedge their currency risk, diluting both the losses and gains from currency swings.

Investors willing to tiptoe on the wild side can trade currencies directly by getting a foreign exchange, or forex, account, either through a broker or online. The process is simple: If you use dollars to buy euros, and the euro rises relative to the dollar, the amount invested will be worth more dollars when converted back into dollars later.

Global Forex Trading, or GFTForex.com, is one online service that offers demo accounts to let small investors test-drive currency trading, and mini-accounts that can be opened with as little as $250. Other online providers include Capital Market Services and FX Solutions. All offer educational information about foreign exchange markets on their Web sites.

Another way to invest directly in currencies is through foreign certificates of deposit, or CDs. Everbank.com offers CDs denominated in a variety of foreign currencies or in baskets of currencies. You can invest in one foreign currency or groups of currencies focused on regions or geopolitical or economic developments.

For example, the Everbank Web site offers a "world energy CD" that combines the currencies of four countries rich in energy resources: Australia, Britain, Norway and Canada. It offers a "prudent central bank" CD with the currencies of Britain, New Zealand, Europe and Australia, whose central banks pursue strong anti-inflation policies.

An investor puts some money in the CD, which pays interest over time. Then, when the CD matures, the money is converted back into dollars. The amount is worth more dollars than at the start if the foreign currency has appreciated in the interim; it's worth fewer dollars if the foreign currency has depreciated.

But currency markets can shift suddenly. Remember the Asian financial crisis of 1997-98? That occurred after global investors decided suddenly, en masse, to yank their money out of several Asian currencies. The dollar surged during this period, in part because investors shifted their money into the safe haven of U.S. Treasury securities but also because of booming U.S. economic growth and rising technology stocks.

The dollar has been sliding for the past six years because conditions have reversed. The U.S. economy went into recession in 2001, and the recovery was initially weak. Today, economic growth is stronger in Europe, Asia and many parts of the developing world. And the dollar is under downward pressure from the United States' burdensome current account deficit -- the broadest measure of the trade gap and the result of borrowing billions of dollars worth of foreign money each day to finance spending and investment.

These trends show no sign of reversing soon, but the sharp turnaround in one decade underscores the volatility of currency markets.