Tammy Trader expects a decrease in the value of the dollar. She shorts it (sells in anticipation of depreciation) against a group of foreign currencies, known as a "basket." In Tammy's rationale, if the dollar appreciates, it will likely appreciate at different rates against the other currencies she's purchased, thereby lessening her loss due to the varying strengths of the currencies involved.
Conversely, had she shorted it against only a single currency, she would have risked the value changing more drastically, resulting in an increased risk (or potential gain) for her position. Buying a basket essentially diversifies her arsenal of currencies.
Related or Semi-related Video
Finance: What is a Country Basket (Index...30 Views
Finance, a la shmoop. What is a country basket index fund?
All right we're picking daisies, marigolds, lilies so uh how do we [Pictures of flowers]
rephrase in Italian? Like, we want to fill a portfolio basket with just stocks [Pouring a glass of red wine]
representing the overall financial health of Italy. Is Italy healthy? While
they smoke a lot they drink a lot of wine they eat a bunch of pasta but there
always seems to be a woman from some small village who's celebrating her [Old woman at a birthday party]
117th birthday over there. Well a country basket is just an index fund of
stocks representing a country. Like we're doing Korea... South we're gonna have
in that basket dunno some Samsung, a load of Daewoo, a hunk of Hyundai and some [Company stocks being added to the basket]
nice barbecue on the side. That'd be our Korean country basket and it's a good
basket to fill if you're just bullish on a country but not really sure which
flower on which to place your bets. It's like instead of trying to decide between [The stocks in the basket turn into flowers]
roulette or poker or slots... Well you just buy stock in Las Vegas
Sands you know you bet on the entire casino, and bueno Fortuna you know good [Someone checking their cards in a casino]
luck there pal, doesn't the house always win? Yeah so why do people keep going there?...
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