Is it a good investment to invest into foreign currency?

I have a friend who is investing heavily into the new Iraqi currency. He claims that right now its worth next to nothing but in a short time when the new currency hits the world markets it will sky rocket in value. Hmmm, Is that a good investment to make?

Investing in a new currency is like investing in a new stock. Prices depend on demand and supply. But in the currency market, additional complication develops due to internationally relative factors such as inflation rates and policies that might affect export-import activities.

In the short run, I dare say that if the new currency is used for purchasing iraqi products, and if the demand for iraqi products is high, there will be huge demand for the new currency, and of course it will sky rocket in value.

However, I expect that other currencies will be in use concurrently (in practice) for some time, like in the Euro case (so, even if you gain, it would not be that much - think about this: if all contracts are priced in USD, there would be no needs to buy the Iraqi currency). Are you willing to take risks of self-adjusting machanism of the currency market?

There is nothing risk-free in the investment world, and remember the classic words: high risk, high return.

Hi there, I am a Finance guy.
Usually the answer with the investments advice is "depends", but in this case I can make an exemption and say "no".
The above mentioned scenario is valid only when the foreign currency is a hard currency, meaning that it can be traded freely on various markets. Most of the currencies can be used only in their origin countries (e.g. the Iraq currency does not have value outside Iraq and noone will buy it or sell it in the US or in any other country, except for the private persons which do it by themselves). Therefore it is a high possibility to get stuck with a high amount of foreign currency which you can spend only in... Iraq.

On the other hand (although the above should be enough), in a "market" such as the Iraq one noone can really predict what is it going to happend with the economy or (even more) with the local currency.

So forget about it...

Hope it helps.