Buck A Slumping Dollar With One Of These Strategies Currency Funds Are Volatile, But Did Well In 1994; Swiss Bank Account Anyone?

The dollar has recovered a bit in recent days, but its slide since December has alarmed many small investors - and with good reason.

It may be time to consider some ways to insulate yourself against a further drop in the dollar - and maybe even profit from it. Consider:

Swiss bank accounts: The most direct strategy is simply to trade in your dollars for a stronger currency. The best bet may be the Swiss franc, which a year ago was worth 69 cents and is now worth 86 cents.

Buying actual paper currency or traveler’s checks is expensive and cumbersome - and you don’t earn any interest. A more sensible route is to open an account at a private bank in Switzerland and direct it to put your money into a certificate of deposit denominated in Swiss francs.

International Financial Consultants Inc. in Rockville, Md., is one of several firms around the country that will help you with the details. Michael Checkan, the company’s president, suggests novices start with a three-month Swiss CD, now yielding 3.5 percent.

Checkan will also assist clients in buying life insurance policies in Switzerland. Death benefits are paid in Swiss francs, which, if history is a guide, will be more valuable to your heirs than dollars when you go to that big chalet in the sky.

Currency funds: Big institutions buy and sell currencies using derivatives, but the stakes are too high and the pace too fast for small investors. There are, however, some little-known alternatives, offered by Fidelity Investments but not actively promoted - three foreign currency “portfolios” (yen, mark and British pound) that function like mutual funds.

Each puts its cash into contracts that are promises to buy, for example, yen at a specific price in dollars at a specific date in the future. If the value of the yen against the dollar rises in the meantime (as it’s been doing), then the fund makes money.

Last year, the yen fund returned 13 percent; the mark fund, 16 percent; and the pound fund, 10 percent. (Forget the pound; it’s generally weaker than the dollar.)

The yen and mark portfolios have been flooded with new cash in the past week, but Scott Kuldell, who manages all three funds, is wary of recommending them for average investors because they’re so volatilesometimes losing or gaining as much as 4 percent a day. Still, the funds provide a convenient way for amateurs to play the currency markets.

Bond funds: A variation on the currency fund theme is the short-term global bond fund, run by managers who put investors’ money into debt instruments of a variety of countries. Unfortunately, these managers have been making some terrible decisions, most recently in Mexico.

Morningstar, the financial publisher, calls the funds “a failed experiment.” But, if you’re a contrarian, that just may be the signal to jump into one of them. The best performer over the past three years is Scudder Short-Term Global Income, yielding a measly 3.6 percent annually.

Country funds: Instead of trading your dollars for foreign cash, bonds or CDs, you can trade them for shares in companies based in countries with strong currencies. You have the chance to benefit twice - if both stocks and currency appreciate.

Since the start of this year, for example, the DAX Index of German stocks has dropped 5.3 percent in terms of marks. But since the mark has risen against the dollar, the DAX is up 3.4 percent in dollar terms.

The smartest way to buy the shares of one country is through a closed-end mutual fund that trades - just like an individual stock would - on the New York Stock Exchange, such as the Germany Fund, which has large positions in industrial companies such as Daimler-Benz and Hoechst; it’s up 7 percent so far this year.

Other single-country funds worth considering are Emerging Germany, Japan Equity, Japan OTC and Swiss Helvetia.

Gold: You can also trade in your dollars for something that’s permanent and tangible: silver, platinum, or, best of all, gold. The price of gold has fallen by more than half since its peak 15 years ago and it’s been disappointingly steady despite the Mexico and Barings crises.

Gold is strictly a safe-harbor investment that won’t pay interest or dividends, and, unlike the stock of a well-run company, it won’t benefit from human brainpower, but it has other appeals.

The most popular way to own gold in this country is through one-ounce coins, especially those issued by the United States, Austria, Canada and Australia. The going price is usually about 5 percent above the market price of an ounce of gold - right now around $395 for an American Eagle.

Another way to benefit from a rise in gold against the dollar is to buy shares in mining companies. But beware: Gold stocks are extremely volatile.

U.S. stocks: Companies such as Coca-Cola Co., Colgate-Palmolive Inc. and Gillette Co. derive most of their profits from sales abroad, so a falling dollar doesn’t hurt them as much as it might a retailer with a domestic base.

But the best stocks for a dollar decline could be multinational energy companies such as Exxon Corp. and Chevron Corp., which not only sell products abroad, but also own petroleum reserves - in other words, actual things, akin to gold.

Whatever the dollar does, you benefit from owning shares of good companies.