Question 16
International diversification can reduce portfolio risk by exposing you to countries and companies that may perform differently than your home market. But it also introduces currency risk: when you hold foreign assets, the value in your home currency can change because exchange rates move. That can boost or reduce returns independently of the foreign market's performance. For long-term investors, currency exposure is another factor to weigh when adding overseas holdings. This question tests the core idea of currency risk.
What is currency risk for investors holding foreign assets?
Did You Also Know...
By Wise Wallet
ETFs offer the diversification of pooled funds with the intraday trading flexibility of stocks, which many investors find convenient.