There is a definite profitable advantage to be had when seeking favorable currency exchange rates and investing offshore. This applies to specific offshore investment ideas such as vacation rental property and stocks and to foreign direct investment on a larger scale. Using Colombia and the current state of the Colombian peso as an example we look at currency exchange rates and investing offshore.
The USD COP Exchange Rate
As of early March, 2015 the USD COP exchange rate is just under 2,600 Colombian pesos (COP) to the dollar (USD). As a point of comparison the peso traded 1818 to a dollar two years ago and again around 1820 just 7 months ago. Go to ExchangeRates.org and pick the two year history for the USD COP exchange rate history.
Welcome to the USD COP history summary. This is the US Dollar (USD) to Colombian Peso (COP) exchange rate history summary page, detailing…
The point being that the peso has fallen dramatically over the last several months. Why is that? Colombia is an oil producer and the Colombian peso is closely tied to the price of oil.
The Price of Oil Falls
Take a look at the chart on InvestmentMine.org for a five year crude oil price chart. The page lists the current price and 52 week highs and lows. Our interest is in the chart.
Crude Oil Price 59.24 USD/bbl (54.55 EUR/bbl) 09 Mar 2015 – 52 Week Low 46.18 USD/bbl 52 Week High 114.77 USD/bbl
The point is that oil was selling for around $110 a barrel in July of 2014 at the same time that the Colombian peso was trading 1800 to a dollar. Oversupply and the presence of threat of recession in Europe, China and Japan have reduced demand at the same time that two main producers, Saudi Arabia and the USA are pumping like mad. Colombia has been caught in this dilemma. Until the price of oil goes up the Colombian peso will be hurting. And what does this have to with currency exchange rates and investing offshore?
Investing in Colombia
Colombia is a democracy with a well-managed economy. The half century long civil war may well be drawing to an end as talks between the government and main rebel faction, FARC, continue in Havana. Colombia is a big energy exporter to the USA, has a free trade agreement with the USA as well as the Pacific Alliance of Chile, Colombia, Mexico and Peru. Direct foreign investment in the oil and gas sector peaked at $13 billion in 2013. Take a look at the CIA World Factbook page for Colombia and click the Economy tab.
Colombia’s consistently sound economic policies and aggressive promotion of free trade agreements in recent years have bolstered its ability to weather external shocks. Real GDP has grown more than 4% per year for the past three years, continuing almost a decade of strong economic performance. All three major ratings agencies have upgraded Colombia’s government debt to investment grade. Nevertheless, Colombia depends heavily on energy and mining exports, making it vulnerable to a drop in commodity prices. Colombia is the world’s fourth largest coal exporter and Latin America’s fourth largest oil producer.
The point is that there is a basis for profitable investment in Colombia and now is an ideal time because of the fall in value of the Colombian peso, property in Colombia and business investment in Colombia. There is vacation property in Cartagena on the Caribbean and business investments in the 8 million person city of Bogota. The coffee producing and agricultural region around Manizales, Pereira, Medellin and Cali is an often overlooked area for investment as well. Because the price of oil is cyclical we can expect to it rise from current lows and bring the value of the Colombian peso back up with it. Simply as a Forex play one might convert their dollars to COP and bank them in Colombia while waiting for an investment opportunity. If the opportunity does not occur one could wait for the expected return of the COP to the 1,600 to 1,800 to the dollar range and simply convert back to dollars with a fifty percent profit! That is our point about currency exchange rates and investing offshore.