Advantages and Disadvantages
As with any product, there are advantages and disadvantages to ETFs. One is that this vehicle has an annual expense of 0.4 percent of assets. If that amount is not enough (the interest rate is below the 0.4 percent expense ratio), then the sponsor can withdraw deposited euros as needed, which could diminish the amount of euros each ETF share represents. The currency ETFs are linked to the spot price versus the U.S. dollar. The obvious strategy to make money in these vehicles is to see the value move in the desired trade direction (you can buy and sell short) and to cover the interest charge less the trust expenses.
The benefactor or the depository for the ETF is JP Morgan Chase Bank. This product is structured as a grantor trust, and Bank of New York is the trustee. Here is how JP Morgan will make money: It will maintain two eurodenominated accounts in London, a primary account that will earn interest and a secondary account that will not earn interest. JP Morgan will not be paid a fee for its services to the ETF. It will instead generate an income or accept the risk of loss based on its ability to earn a spread on the interest it pays to the trust by using the trust’s euro position to make loans in other banking situations. To be sure, JP Morgan has an advantage of floating money, so I would not worry that it will put itself in a position of extreme risk.
Source: Trading Currency Stocks?
