GLOSSARY TERM
Currency Risk
Currency risk means that changes in exchange rates can affect the value of an investment when it is priced in a different currency than your own.
What does this mean in practice?
If you invest in assets that use another currency, your return depends not only on the investment itself, but also on the currency movement. Even if the investment goes up in value, a weaker foreign currency can reduce your return when converted back into your home currency. The opposite can also happen and improve your return.
Example
You live in the euro area and invest in a US ETF priced in dollars. If the ETF rises by 8% but the dollar weakens against the euro, your return in euros may end up being lower than 8%.
Why it matters
Currency risk can affect short- and medium-term results, especially in international investing. It helps explain why returns in your own currency may differ from the return shown for the investment itself.
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