Investing abroad... understand currency risks

If you have been investing abroad, either in the stock market or in the housing market, one should really sit down to understand currency trends and currency risks.

Lets take an example

If you bought a stock at 1$ in the US a few months ago, you would have spent 47Rs ( assuming at that time 1 USD= 47Rs).

Today that stock is worth $ 1.2- so you feel happy that you have gained 20% .

This is true- but not completely!

That is because you are comparing it with the USD, but have not taken into consideration the currency exchange rate.

Let us assume that the USD is now 1: 45.

so the money you have actually earned is Rs 54 which is a 15% gain and not a 20%.

Now if the exchange rate was 1: 48- then your portfolio value would have been Rs 57.6 which means a growth of 23%

Now- we cannot control the exchange rate fluctuations, but we should understand it-- especially when it is volatile and understand what direction it will take and the impact on your savings!


Happy investing!

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