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A foreign holding carries the currency as well as the asset

Written by WiT Markets EditorialReview Editorially reviewedLast reviewed

A share priced in another currency can rise in that currency and fall in yours. Hedging the currency is a second position, with its own cost and its own mismatch. Conversion is a third line.

Diagram for A foreign holding carries the currency as well as the asset
Editorial diagram for this note. It is not a data release and it does not plot a market price.

risk1 min readmulti asset

Key points

  • The asset result and the currency result add. They are not the same move.
  • A hedge of the currency can itself need collateral and can miss.
  • This note does not quote a live exchange rate.

What is going on

Translate the foreign value by the rate you can actually deal at, not by a midpoint you saw earlier, if the conversion is part of the exit. BIS material on foreign exchange describes a market much larger than a retail ticket. A retail conversion is the rate your firm applies. A listed currency contract used as a hedge has a size, an expiry and a basis against the rate you care about. The forex position calculator on this site uses inputs you type.

Why it matters

Leaving the currency unhedged means the portfolio result includes it. Hedging it spends a cost to remove part of that result and can leave a mismatch of dates or amounts. Neither choice is free of a risk. A bond or a fund with foreign holdings can carry the currency even when the wrapper is quoted at home.

What to watch

Write the currency of the asset, the currency of the account, and whether a hedge exists. Read the conversion charge as its own line.

Risks

Rates gap. A hedge can be closed by a collateral rule while the asset remains. This page is not a forecast of a currency.

Related

Sources and review

Written by: WiT Markets Editorial. Writes and structures WiT Markets pages. Separates a sourced fact from a cell that is Not confirmed.

Review: Editorially reviewed. This is not a qualified specialist review and it is not a legal sign-off.

Last reviewed: . Next review due . The date is an editorial pass. It is not a live check of every third-party fee.

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The other currency in the holding | WiT Markets