Foreign Currency Effects

AAA

DEFINITION of 'Foreign Currency Effects'

The gain or loss on foreign investments due to changes in the relative value of assets denominated in a currency other than the principal currency with which a company normally conducts business. A rising domestic currency means foreign investments will result in lower returns when converted back to the domestic currency. The opposite is true for a declining domestic currency.

BREAKING DOWN 'Foreign Currency Effects'

Foreign investments are complicated by currency fluctuation and conversion between countries. A high-quality investment in another country may prove worthless because of a weak domestic currency. Foreign-denominated debt used to purchase domestic assets has led to bankruptcy in several cases due to a fast decline in a domestic currency or a rapid rise in the currency of the foreign-denominated debt.

RELATED TERMS
  1. Cambrist

    An individual who is deemed to have above-average knowledge of ...
  2. Export Credit Agency - ECA

    A financial institution or agency that provides trade financing ...
  3. Currency

    A generally accepted form of money, including coins and paper ...
  4. Unsponsored ADR

    An American depositary receipt (ADR) issued by a depositary bank ...
  5. Guilder Share - New York Share

    An ownership stake in a Dutch company that can be traded in the ...
  6. Repatriation

    The process of converting a foreign currency into the currency ...
Related Articles
  1. Bonds & Fixed Income

    Are High-Yield Bonds Too Risky?

    Despite their reputation, the debt securities known as "junk bonds" may actually reduce risk in your portfolio.
  2. Forex Education

    Currency Exchange: Floating Rate Vs. Fixed Rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers.
  3. Forex Education

    Dollarization Explained

    Find out how fledgling economies can find some stability in their currency and attract foreign investment.
  4. Forex Education

    Drastic Currency Changes: What's The Cause?

    Currency fluctuations often defy logic. Learn the trends and factors that result in these movements.
  5. Bonds & Fixed Income

    An Overview Of Corporate Bankruptcy

    If a company files for bankruptcy, stockholders have the most to lose. Find out why.
  6. Economics

    Overseas Investing No Protection Against Downturn

    The U.S. economy affects many other countries. Find out what this can mean for overseas investments.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  8. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  10. Mutual Funds & ETFs

    ETF Analysis: Vanguard Total World Stock

    Learn about the Vanguard Total World Stock exchange-traded fund, which invests in stocks located in numerous countries with a high level of diversification.
RELATED FAQS
  1. What is the difference between a greenfield investment and a regular investment?

    A greenfield investment is a particular type of investment where an international company begins a new operation in a foreign ... Read Full Answer >>
  2. What are the benefits for a company investing in a greenfield investment?

    Advantages of greenfield investments include increased control, the ability to form marketing partnerships and the avoidance ... Read Full Answer >>
  3. Why did China designated certain territories as special administrative regions?

    The primary reason for the People's Republic of China designating two territories as special administrative regions, or SARs, ... Read Full Answer >>
  4. What emerging markets are best positioned to benefit from growth in the utilities ...

    Emerging market economies expected to benefit the most from growth in the utilities sector include China, India, Brazil and ... Read Full Answer >>
  5. What are some examples of a Foreign Institutional Investor (FII)?

    Foreign Institutional Investors A foreign institutional investor, or FII, is a hedge fund manager, pension fund manager, ... Read Full Answer >>
  6. What kinds of costs are included in Free on Board (FOB) shipping?

    Free on board (FOB) shipping is a trade term published by the International Chamber of Commerce or ICC, that indicates which ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  2. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  3. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  4. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  5. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  6. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!