How to Profit from Swiss Central Bank's Market Intervention

The markets were shocked yesterday when Switzerland's central bank announced that it was putting a ceiling on how high it would allow the Swiss franc to trade in relation to the euro. The Swiss National Bank (SNB) has warned investors for months with words and deeds that it would not allow the Swiss franc to continue climbing higher relative to other currencies. The soaring franc put Swiss companies at a disadvantage to international competitors because it forced them to raise prices or sacrifice profits. A strong franc is also harmful to Switzerland's tourism industry because it makes the country more expensive for tourists to visit at a time when many tourists are saving money by holidaying closer to home. The Swiss have brought the currency crisis upon themselves by managing their finances too well compared to their neighbors. Because the ability of several eurozone countries and even the United States to pay their bills has increasingly come into question, investors have been looking for safe places to put their money. The currencies of countries like Switzerland and Japan have climbed higher because the market sees these countries' finances as more stable than others like the United States and most eurozone countries. In the past investors had more currencies to choose from and pressure on the Swiss franc might have been relieved by investors buying up German Deutschmarks. However, this is no longer the case since so many European Union members switched from their former currencies to the euro. Evidence of this can be seen in the widely divergent yields on bonds issued by eurozone members like Germany and Greece. While there are still many bond markets to choose from in the eurozone, the single currency forces currency traders to place their bets on the region as a whole, regardless how well some countries manage their finances. There are a number of investment options open to investors who see the latest action of the Swiss National Bank as an investment opportunity. While the initial market reaction to the announcement was a steep drop in the value of the Swiss franc, it's not certain how long the Swiss National Bank will be able to keep to its promise to prevent the franc from rising any further. It already tried to do the same thing a couple of years ago and look where the franc is now. Its previous efforts proved futile and expensive and had many critics. Also, each passing month finds the eurozone in deeper financial trouble. First it was Greece and Ireland that were under scrutiny, then Portugal, followed by Spain and Italy. With bad news continuously coming out of the eurozone, maintaining the ceiling against the euro could prove impossible. In such a scenario, investors who bought the CurrencyShares Swiss Franc Trust

on the dip could see their investment do quite well. If the Swiss franc were to start moving higher against the euro, despite the best efforts of the Swiss National Bank, the ProShares UltraShort Euro

and the Market Vectors Double Short Euro ETN

could climb higher as the euro falls relative to the franc. If the Swiss Central Bank manages to halt the franc's rise, the iShares MSCI Switzerland Index

should move higher compared to Europe's other stock market index funds. A falling franc will benefit Switzerland's exporters and the country's tourism industry, which should lead to a better performing Swiss stock market. Investors who aren't confident about which way the franc will move may want to take a look at the CurrencyShares Japanese Yen Trust

. While the Japanese have been unhappy with a historically high priced yen, they reacted to the Swiss announcement of a ceiling being placed on the francs exchange rate by saying that Japan would not follow suit with such drastic measures. If Japan sticks to its promise, the Japanese yen may become the world's leading safe haven currency.