How do currency fluctuations impact international stock investments?

Currency fluctuations impact international stock investments by changing the value of your foreign holdings when converted back into Indian rupees. If the foreign currency weakens against the INR, your returns decrease. If the foreign currency strengthens, your returns increase — even if the stock’s price stays the same.

How Currency Movements Affect Global Stock Returns

When you buy shares in companies listed abroad — like Apple, Amazon, or Tesla — the value of those investments is in that country’s currency. If that currency loses value compared to the Indian Rupee, your investment returns drop when converted back to INR. Conversely, if the foreign currency gains strength, you benefit from currency appreciation even if the stock price remains unchanged.

For instance, if a US stock gives 10% return but the USD falls 5% against the INR, your net return becomes only 5%. On the other hand, if the USD rises 5%, your effective return becomes 15%.

Examples of Currency Impact on Stock Returns

Let’s say you invested $1000 in a US tech stock and the USD to INR exchange rate was 75 when you bought it. After 1 year:

• The stock grew by 10%, so your investment is now $1100.
• If USD weakens to 70 INR: $1100 × 70 = ₹77,000 (you lose value in INR).
• If USD strengthens to 80 INR: $1100 × 80 = ₹88,000 (you gain more in INR).

The example shows how currency changes can either boost or reduce your actual return, despite stock performance.

Key Factors That Influence Currency Fluctuations

Several macroeconomic factors impact currency strength:

• Interest rates: Countries with higher interest rates often attract more foreign investments, strengthening the currency.
• Inflation: Lower inflation often supports stronger currencies.
• Trade balance: Countries with export surplus tend to have stronger currencies.
• Political stability: Investors prefer stable regions, boosting their currency value.

Keeping track of such factors helps you make better-informed decisions for your international investments.

Tips to Reduce Currency Risk in Global Stock Investments

To protect your international stock investments from currency risks, follow these strategies:

• Diversify across regions: Invest in stocks from different countries to avoid being hit by a single currency.
• Long-term horizon: Over time, currency movements may even out, reducing short-term volatility.
• Monitor currency trends: Stay informed about global currency movements to decide entry and exit points.
• Use SIPs: Investing in global stocks via SIP can help balance out currency swings over time.

Currency fluctuations are a crucial factor when investing in international stocks. They can significantly amplify or reduce your returns in INR. With proper diversification, awareness, and a long-term view, you can manage currency risk effectively and make the most of global stock opportunities.