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Meanwhile, investing globally is a prudent strategy for mitigating currency risk, as having a portfolio that is diversified by geographic regions provides a hedge for fluctuating currencies. Investors may consider investing in countries that have their currency pegged to the U.S. dollar, such as China.

How currency manipulation can lead to a currency war. A currency war can break out after a country deliberately devalues its own currency and prompts another nation to do the same. This is also known as 'competitive devaluation'.

A more direct form of currency manipulation is intervention. After the appreciation of the Swiss franc during the financial crisis, the Swiss National Bank purchased large sums of foreign currency, namely USD and euros, and sold the franc.

The basic approach is simply to change the size of the money supply. This is usually done through open-market operations, in which short-term government debt is exchanged with the private sector.

Currency prices are determined in two ways: fixed rates and floating rates. Fixed rates are pegged to a currency while floating rates move freely with market demand. Nations attempt to manipulate their currencies so that they remain strong and so that the demand for their currency is high in foreign exchange markets.

Currency manipulator is a designation applied by United States government authorities, such as the United States Department of the Treasury, to countries that engage in what is called ?unfair currency practices? that give them a trade advantage.

*The three criteria are current account as a share of GDP, intervention in the foreign exchange market as a share of GDP, and the bilateral balance with the United States.

Simply explained, in order to weaken its currency, a country sells its own currency and buys foreign currency ? usually U.S. dollars. Following the laws of supply and demand, the result is that the manipulating country reduces the demand for its own currency while increasing the demand for foreign currencies.