When investing abroad, currency matters

Will foreign currencies add diversification or more risk in a global equity portfolio?

Salman Ahmed, CFA 10 June, 2014 | 6:00PM
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Quite frankly, currencies are confusing. There are numerous cross currents to think about. For example the Canadian dollar may be strengthening against the U.S. dollar, but weakening against the Japanese yen. Now imagine that happening for all currencies in a global equity portfolio. Then there's the terminology -- derivatives, futures, forwards, swaps, spreads, overnight. It sounds like a cross between a sci-fi and bad romantic novel.

So I'll spare you the migraine and spend much of this article going over how hedging or not hedging foreign equities affects your portfolio rather than the intricacies of currency markets. (You can read Vishal's article on hedging in foreign bonds here.)

To hedge or not to hedge?

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About Author

Salman Ahmed, CFA

Salman Ahmed, CFA  Salman Ahmed, CFA, is an associate director of active manager research with Morningstar Canada.

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