Currency risk

The uncertainty that exchange rates add to a foreign holding

In detail

Currency risk is the way an exchange rate moves the home-currency value of a foreign asset. Even when the local price is unchanged, a stronger home currency shrinks what it is worth to you. A weaker one does the opposite, so the word covers gains as well as losses. Hedging reduces it, at a cost.

Example

Measured in yen, a $10,000 asset is worth 1.5 million yen at 150 per dollar and 1.4 million at 140.

Differences by country

South Korea — Measured in won, a $10,000 asset is worth 14 million won at 1,400 per dollar and 13 million at 1,300.

Related terms

Currency hedging Exchange rate Foreign stocks Currency gain and loss

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For learning, not investment advice. Decisions are your own.