A long time ago when I held the post of portfolio manager in a large multinational company, during a meeting with some bankers, a very experienced one asked me, "Why do you need our foreign exchange facilities, for hedging or for speculation?" Without thinking twice I asked him to draw the line between the two. After all these years I am not surprised that he was not able to give a straight forward answer.

People generally believe that currency exchange rates are something totally irrelevant to their daily affairs. A dollar is always a dollar they say. Funny enough, the very same people are very sensitive to words like inflation rate, interest rates, etc. and almost all of them keep a portion of their money in bonds and stocks in order to preserve the value of their portfolio--a different mix of cash, treasuries and securities in an attempt to hedge against economic fluctuations. Not a single one of them will admit speculating in favor of or against financial changes. All of them will comfort themselves by considering their buys and sells as decent hedging against undue risk.

Perhaps a few decades back the foreign exchange market was a field of interest for only a limited number of population groups. On the eve of the 21th century, however, it is very naive to ignore currency rate changes, and this is true even for the single small investor. If anybody does care about the value of his/her money, what a dollar buys today is not what a dollar will buy tomorrow. International trade is so pervasive that

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