If you invest in a foreign market, does the share value depend of the foreign currency?

Question

If you invest in a foreign market, does the share value depend of the foreign currency?

Answer 1

Yes. If your home currency is GBP and you buy a US stock you will be exposed to the GBP?US$ fluctuation. Likewise if you buy gold.

Answer 2

Yes, because currencies change in price from time to time. Your particular currency may stay within an acceptable price band and your share price may move, or the share price might be constant and the currency price move. In reality, both are linked and one may indicate the strength of the other, depending upon the industry the company's share is in. If they are particularly exposed to foreign exchange fluctuations for whatever reason, the value may change dramatically.

Example (not including commission, foreign exchange commission)

You like American share.

Share in American company: $200

You go to your broker and pay your broker £100 for the share as the exchange rate is £1 = £2. He changes the money for you into dollars and gives you the share in return.

Overnight, the £ falls against the dollar. £1 now gets you 25 cents. You would have to pay £800 to buy the $200 share. Your share has gone up in value. If someone were to buy the share off you, they would have to give you £800 and you would have made £700 profit.

Let's say the £ rises though. £1 now gets you $4. Now, if you sold the share and then cashed the dollars back for pounds, you'd only get £50 back. You'd have lost £50 from your original £100 investment.

People buy and sell on the foreign markets, taking advantage of information of what way the market goes, what way the currency market goes. You have an extra variable moving here, so there is more scope to make money out of price movements. But you need a lot of capital to make back money. If you imagine, to buy the share in our example, you would need to pay the broker's commission and the US broker's commission and the foreign exchange broker's commission - whether that means three independent people or one person incorporating those 'costs'.

Answer 3

Sure does! You can make money or lose your shirt depending on currency variations.