Risk & returns
Currency risk is the effect of exchange-rate changes on assets, liabilities or cash flows measured in another currency. Local asset return and home-currency return can differ sharply.
Make it click
A fixed number of foreign tokens buys a changing number of home tokens as the conversion rate moves. The item can be unchanged locally while its translated value changes.
Now put that into markets
A foreign investment combines local-market performance with currency movement. Companies also have revenues, costs and debt in multiple currencies.
Hedging can reduce selected exchange exposure using contracts, but adds cost, basis and rolling decisions. Translation and economic exposure are not identical.
State base currency and distinguish listing currency from underlying revenue exposure. Decompose local return and FX contribution.
Currency can diversify or amplify risk and hedges are imperfect. A company listed domestically may still carry large foreign-currency economics.
Takeaway
