How Currency Affects International Stock Returns
Foreign exchange movement can add to — or wipe out — your international stock returns. Learn how currency exposure works and how to think about hedging.
The two components of return
When you own a foreign stock, your return has two parts: the stock's move in its local currency, and the move of that currency against your reporting currency. Both add up (or cancel out).
A simple example
Suppose a Japanese stock returns +10% in yen. If the yen weakens 8% against your home currency over the same period, your return in home currency terms is roughly +1.2%. The stock did well; the currency gave most of it back.
Dividends carry currency risk
Dividends are paid in the local currency. If your reporting currency strengthens, the same dividend converts to fewer units. Plan for this if you rely on foreign dividends for income.
Should you hedge?
Hedging removes currency risk at a cost — the forward-rate premium and any ETF wrapper fee. Long-term diversified equity investors often skip hedging because currencies mean-revert. Shorter-horizon investors and bond investors are more sensitive.
What to track
A good multi-currency tracker shows both the native-currency return and the reporting-currency return. That separation lets you see whether your gain came from the stock or the FX move.
Stockrove is for informational and educational purposes only. This article is not financial advice. Data may be delayed or incomplete. Always do your own research before making investment decisions.