How Currency Moves Change International Stock Returns for U.S. Investors

A stock market rally overseas does not always translate into an equally strong return in a U.S. brokerage account. For an American investor, the change in a foreign asset’s price and the movement of its currency are two separate parts of the result.

The two layers of an international return

The SEC’s international investing guidance explains that exchange-rate changes can increase or reduce a foreign investment’s value in dollars. Even a security that gains in its home market can lose value when translated into U.S. currency. This makes the currency used in a performance table an essential detail, rather than a footnote.

A simple numerical example

Consider a hypothetical investment of $1,000. Assume it buys €1,000, with an initial exchange rate of $1 per euro. The shares then rise 10%, making the holding worth €1,100. If each euro is worth only $0.90 when the position is valued again, that holding becomes $990. The local stock gain has turned into a 1% dollar loss.

If the euro instead rises to $1.05, the same €1,100 holding becomes $1,155, a 15.5% dollar gain. These examples exclude dividends, fees and taxes and are illustrations, not forecasts.

Use multiplication, rather than simply adding returns

For this simplified example, dollar return equals (1 + local asset return) × (1 + currency return) − 1, where currency return measures the foreign currency’s change against the dollar. With a 10% asset gain and a 10% currency decline, the calculation is 1.10 × 0.90 − 1 = −1%.

Questions to ask before comparing results

Are both performance figures expressed in U.S. dollars?
Do they cover exactly the same start and end dates?
Do they include dividends and investment costs?
Does the investment’s documentation describe a currency-hedging policy?

A useful research worksheet separates the local asset result, the exchange-rate effect and the final dollar result. That prevents a currency tailwind from being mistaken for superior stock selection, or a currency headwind from being mistaken for poor company performance.

The practical lesson is to identify what actually produced a return before comparing international investments. A headline percentage alone cannot tell that story.