George Soros, manager of the Quantum hedge fund, has gone down in history as the man who made $1 billion from betting against sterling in 1992. But these days it is not only the mega-rich who can take a punt on currency movements.

If you know where to look, there are currency funds designed to allow private investors to move into anything from euros and US dollars to Australian dollars - and you need only a few thousand pounds to invest.

Peter Lucas, of Ashburton, the fund management company, says: “There is a lot to be said for UK investors having at least some of their money in foreign currencies because the pound looks overvalued. Sterling is in trouble because the current account deficit is large, the fiscal deficit is large, consumers have racked up a mountain of debt and the house-price bubble is set to burst.”

Currency funds are not as readily available as equity funds, nor are they as heavily promoted, so you have to search a bit harder. Close Wealth Management offers euro and dollar funds. Fidelity has currency funds denominated in euros, US dollars, Australian dollars and Swiss francs. With these funds the investor is putting his or her money into a currency and taking a bet that it will strengthen against the pound.

Other groups, such as Fortis and Investec Asset Management, offer managed currency funds, where the fund manager, rather than the investor, makes the decisions about which currencies to invest in.

Thanos Papasavvas, head of currency management at Investec Asset Management, says: “We have been overweight in Japanese yen, which we think is a good currency for these volatile markets. We also like the Swiss franc, which is strong and backed by a well-managed economy.”

There are two ways to make money: from any appreciation of the currency against the pound and from interest that you receive. The latter can range from negligible in Japanese yen funds to more than 10 per cent in a New Zealand dollar fund. The rate of interest reflects the prevailing money market rates in the particular country. Where rates are rock bottom, as in Japan, the interest rate is low. Where they are high, you receive a better return.

The minimum investment is often modest. For example, with Fidelity it is $2,500 (£1,275). You can find the application form on the Fidelity website, print it out and send it to the company, specifying the currency fund in which you want to invest. When you want to sell, write in again with your instructions.

But choose with care because returns vary. Over the past five years the Fidelity Australian Dollar Currency Account fund has yielded 25 per cent in interest and a further 21 per cent in currency appreciation against sterling, producing a total return of 46 per cent. By contrast, the Fidelity Swiss Franc Currency Account fund returned only 11 per cent over five years. The Fortis AAF-Currency Fund returned 13.7 per cent in the three months to March 31, though Michael Victoros, of Fortis, says that this was an unusually good quarter.

Private investors have been slow to catch on to the benefits of currency funds, but that is starting to change. Mr Papasavvas says: “Institutional investors have spotted the attractions of currency as an asset class that can provide good returns but is not closely correlated to other asset classes. Private investors are starting to appreciate these attractions.”

For a racier option you could try the currency trading platform run by Moneycorp Markets. Moneycorp does not offer funds to investors, but it allows them to buy and sell currency directly by downloading the platform on to their computer after completing identity and security checks. It provides access to several dozen currencies. An investor can buy a currency if he or she thinks that it will appreciate in value, or sell if he or she thinks that it will fall. Peter Shepherd, of Moneycorp, says: “Each trade is automatically geared up 100 times, so a £1,500 investment would back a currency trade of £150,000. Because this is potentially risky, we insist that investors set a stop-loss to limit the damage if the currency bet goes the wrong way.”

Charges vary, depending on the currency and size of trade, but a £100,000 euro-sterling trade would carry a charge of about £30. Mr Shepherd adds that today's volatile markets mean that substantial sums can be made, or lost. He cites the example of the euro appreciating against the pound: “At the start of the year €1 was worth 74p, today it is worth about 80p - a rise of about 10 per cent in four months. Over the past six months it has risen by about 17 per cent against sterling.”

One final word of caution. Currency funds are offshore investments and not regulated by the Financial Services Authority, so investors have no recourse to a UK regulator or compensation scheme if things go wrong.

Tax boost for shareholders in foreign companies

Changes in the way that dividends paid by foreign companies are taxed has made holding overseas shares more attractive.

The move, which came into force on April 6, affects hundreds of thousands of shareholders in UK companies that have been taken over by foreign companies, such as Abbey, now owned by Santander, the Spanish banking group. The key change is that UK shareholders will be awarded a tax credit of one ninth of any dividend payout by a non-UK resident company.

Until now UK holders of foreign shares, such as Santander, were taxed as follows: on a dividend of £90 there would be a deduction of £16.20 for Spanish witholding tax at 18 per cent. Then UK higher-rate tax on dividends (32.5 per cent) would be levied on the £90, taking a further £29.25. Even after a credit of £16.20 to compensate for the Spanish witholding tax, this still left shareholders with a UK tax bill of £13.05 and a Spanish tax bill of £16.20, making a total of £29.25.

But under the new rules, the bill will be smaller. Mike Warburton, of Grant Thornton, the accountant, explains: “You are treated as though the £90 dividend was after payment of £10 tax, even though you haven't paid this, so the starting point becomes £100. This will be taxed at 32.5 per cent, resulting in a deduction of £32.50.

“But this £32.50 will be reduced by a credit for the Spanish tax (£16.20) and a 10 per cent tax credit (£10 in this case). These cut the UK tax from £32.50 to £6.30. When added to the £16.20 of Spanish tax the bill falls to £22.50.”

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