Rupee falls to record low against US dollar! Know the impact on your US stocks portfolio

In context of the foreign exchange rates, there is a big trade-off in international investing.

rupee, dollar, exchange rate, international investing, profit, loss
An ideal scenario will be that your foreign stocks appreciate and INR depreciates against the dollar.

Indian Rupee continues to show weakness against the US dollar and has hit record lows in recent times. From Rs 64 to a dollar in 2017, the Rupee had slumped to almost Rs 79.38, a fall of almost 4.56 per cent on a compounded annualised basis. Any change in the INR-USD exchange rate has direct implications on your international investment portfolio. Historically, INR has shown weakness against the US dollar and, therefore, the probability to profit from investing in stocks rises if you buy foreign stocks.

You, in fact, are in a position to gain from two streams – From stock appreciation and secondly, from the currency exchange rate. The reverse is also true and if stock prices fall, the gain can only be expected on the exchange rate front.

Welcome to the world of international investing where you are not only up against the stock price but also the currencies.

If rupee weakens against dollar
At the time of selling the stock A, the stock price has not changed but the rupee has weakened by 10 per cent or so against the dollar. While converting dollars back to INR, you stand to gain even though the price of the stock is at the same at the time of selling. Say, the rupee weakens, you stand to gain even while the stock has not appreciated. If the stock price has gained, you stand to gain from both – currency rate and stock appreciation.

If rupee strengthens against dollar
At the time of selling the stock A, the stock price has not changed but the rupee has strengthened by 10 per cent or so against the dollar. While converting dollars back to INR, you stand to lose even though the price of the stock is at the same at the time of selling. Say, the rupee strengthens, you stand to lose even while the stock has not appreciated. If the stock price also gains by an equal percentage, you are on the same ground.

If rupee-dollar exchange rate remains same
If at the time of selling, the exchange rate is the same, then it means there is no currency risk on your transaction on selling the stock. Say, the stock price has moved up or fallen by an equal margin, the currency risk is absorbed.

Conclusion
In context of the foreign exchange rates, there is a big trade-off in international investing . An ideal scenario will be that your foreign stocks appreciate and INR depreciates against the dollar. In that case, you gain on both the grounds and it’s a double bonus. To make the best use of such opportunities you need to start looking at international investing actively.

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