Christian Hviid's  Instablog

Forex can cause gains in currency transactions and currency translations.

For currency transactions this suggests that companies can gain from unit demand or a pick up in market share. For example, take a European luxury maker for example and contrast against a U.S. luxury maker both exporting to China. Given the recent down moves in the Euro vs. USD it is not hard to figure that the European company's goods are priced more competitively in local terms (Chinese Renminbi) given the currency tailwind as far as exported products. Hence the European manufacturer can see a pickup in units sold or a gain in market share away from U.S. manufacturers in the Chinese example. Big ticket goods such as Heavy Machinery, Aircraft and other goods that compete on a global basis can illustrate the meaningful effects currency fluctuations can have on competitiveness.

Currency translation is the other manner in which multinationals can benefit from weaker local currencies. Appreciating foreign currencies have the effect of inflating sales and other financial metrics in local terms. This type of catalyst for a company tends to be quickly discounted by the market and tends to be a weaker argument for justifying multiple expansion unless unit growth is witnessed.

Given the recent weakness in the Euro there could be an argument for rotating some of one's U.S. multinational exposure into European multinational exposure to benefit from the effects of a weaker Euro. It also helps that many babies have been thrown out with the bath water so to speak and valuations are more attractive relative to U.S. broad equities and dividend yields are about twice what you can fetch for U.S. equities.

Euro ETF

The Dollar Index ETF

To contrast maybe a recent example within the chip industry (Note these may not be the best apples-to-apples comparison but from an industry perspective may offer a valid example of what foreign exchanges can contribute):

Applied Materials - (US/USD)

ASM Lithography Holding - (Netherlands/Euro)

The examples above are for illustration purposes only and should not be interpreted as an offer or solicitation to buy or sell any security.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.