How to Cash In (or Not) on Currency Exposure
A globetrotting portfolio could have an impact on your bottom line.
Question: I've been hearing a lot about how the dollar is headed down. How could these movements affect my international investments' returns?
Answer: International travelers know that when they go abroad, they will have to exchange U.S. dollars for other currencies before they can hop in a taxi or pay cash at a restaurant. The same holds true for buying stocks on a foreign exchange, or doing so indirectly via a foreign mutual or exchange-traded fund. Before U.S. investors can buy shares of a foreign stock, they must first trade in their dollars for the foreign currency in which the security is denominated. And when they sell the stock, they'll receive the proceeds in the foreign currency, which they must then exchange for dollars. Appreciation or depreciation in that foreign currency over the time they've held the stock might affect returns--sometimes for the better, sometimes for the worse.