The impact of foreign currency on investing returns

At any given time the market in different countries can behave quite differently. For example, while US and European sharemarkets have recently been adversely affected by increased threats of terrorism, in New Zealand we have remained relatively immune to these geopolitical risks.

The downside of investing in international market is that it means exposing your investments to foreign currencies, and while this is also offers diversification, it also means a whole new set of risks that can introduce volatility to your portfolio. However, there are tools to manage this risk and access to these tools is a major advantage of using professional investment managers. In fact, they may be able to use the changes in exchange rates to your advantage. In this article we will look at how exchange rates affect your overseas investments, how managers can reduce the impact of currency on your portfolio, and what hedging is and how it works.

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