Article about the "Currency Exchange Risk"

I did some simple calculations for currency exchange risk and how it has affected investments denominated by various currencies. They aren’t comprehensive simulations. But for those who do not have a lot of knowledge on the topic, they provide a good reference point for how the strong franc has affected foreign investments over the past 20 years. You can find the calculations here:


Why are you using the Nasdaq for the US comparison, while using normal blue chip/market indices for the others? Doesnt make sense to me and gives a skewed picture.

The S&P 500 would be way more appropriate.

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Maybe I’m making a Denkfehler, but are your % stock gain needed comparisons to “holding CHF in cash” correct?
For the simplest examples where the currency depreciated by approximately half (Yen, SKR), wouldn’t Nikkei and Swedish stocks need to have appreciated 100% to compensate the halving, and give me back my CHF invested in 2004? But for those you write would need a 50% stock appreciation.

Hi Daniel, did you remember to include dividends?

If not it could be misleading to people who don’t understand the topic well. Additionally I don’t think the following is accurate: “The performance of the FTSE 100 over the same 20 years was around 68.95 percent”

The index is up by that amount but the performance is 174%, including dividends


Good point. I used the Nasdaq 100 because in my experience, most people are more familiar with that index. I also find it a more fair comparison with the SMI, while I would compare the S&P 500 with the SPI.

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Thanks for the feedback. I’ll recheck the math there.

I didn’t account for dividends because I was comparing with the SMI. That does skew things in favor of the DAX.

I would actually say the SMI is our S&P. SPI would be more the US total market index or the Russell 3000.
S&P 500 as the biggest large caps in the US is similar in intent than our SMI.

Come on, people! That’s not the point :grinning:

I agree that taking Nasdaq for US Market is a stretch, but again this is not the point.

Anyway, for me the whole exercise had turned into “which country’s index had outperformed if converted into the same currency”.

I would rather love to see analysis of FX effects while investing in bonds, hedged and non-hedged.

Rents can go up and tech companies’ stock can still go down (and boy they did, at the beginning of the millennium!).

That’s not an argument for buying local stocks - if anything, that’s an argument to buy real estate assets that provide a hedge against rising rent/property prices.

It may be the more popular alternative to the S&P 500 for Swiss retail investors - but I wouldn’t consider it a fairer comparison, quite the contrary.

Nasdaq 100 excludes the financial sector by design - whereas that’s the third biggest sector in the SMI.

I do not quite understand why we are comparing different country indexes. Different country index will always have different returns.

If we are trying to understand currency effects and to evaluate if hedging helps, then the comparison needs to be on same index.

Link below shows comparison for CHF hedged vs unhedged

However, i would caution to use simply past because we were in zero interest environments. Following paper has more research

I think i concluded at some point, the results are not conclusive.

This Moneyland article is so braindead that it hurts. The denomination of an asset has next to no influence on its return. This is not currency exchange risk. This is the return of indices in CHF.

The stock market of Singapore has a relation with the Singapore Dollar in that they are both from Singapore. That’s where it ends. Stocks are not currency; they are influenced by operating in markets which use certain currencies. Big companies operate internationally. Nestle has a much bigger exposure to USD than to CHF.

Do we need a wiki article, so everyone can understand this? (And my brain does not have to hurt).

I see that the author is the same as the user. @Daniel, you made useful contributions elsewhere, but this is just wrong and perpetuates the wrong notion that denomination and asset have any important relationship in their return.

Apart from being untrue, this is a recurring problem (also on this forum) that leads to adding currency hedges to products. A nearly pure forex bet, unrelated to the underlying asset.

To the article? Yes, and rightfully so. It is blatant misinformation on a reputable website.


I think your article is mainly trying to show that investors should account for Currency risk while investing abroad. In some cases, you are showing equity return was enough to compensate the currency loss. While in others it was not.

I have two questions

a- from your article, I cannot understand the conclusion. Was your intent mainly to show that currency risk matters? What is your final recommendation?

b- are you comparing total returns from indexes including dividends (reinvested), witholding tax etc? That would be a fair comparison.

Hi Helix, thanks for the feedback. I don’t have any emotional attachment to my articles, so I always appreciate useful feedback and learning.

The article references investments denominated in a given currency, be it bonds, stocks, etc.

I am not a fan of currency hedging. I also understand that arbitration will always even out markets. But I am curious about your take on currency risk. Would you argue that the currency risk is primarily in the currency to which a stock has the biggest exposure, or the currency in which it is denominated?

My main point was to show how the strength of the Swiss francs can work against Swiss investors with regards to foreign investments.

If you account for withholding tax, that would be an added plus for Swiss investments.

Personally, though, I am strong on geographic diversification.

I appreciate when people can see that hard words are pointed at an idea and not a person. :+1:

The trading denomination is irrelevant for all assets. Would you hedge the EUR denomination of the IUSM Treasury bond ETF traded at XETRA?

The correlation between a business and the markets it operates in is there. There probably is also a correlation between a market and the currency used in that market. But what those correlations are, I don’t know. Maybe it is even negative or there is a delay in reaction?

Many companies have long-term contracts (e.g., wages, government contracts) denominated in a currency. But maybe the risk is unacceptable for the company, so they already hedged it themselves? Does the company have debt? Why would it need to be in the currency of the country they are registered in?

One could of course analyze every asset in depth and make an educated guess about hedging the asset. That is easy with bonds, but hard with stocks. I just don’t think it pays finding and then implementing this hedge for stocks. But maybe it is, and I have just not seen a compelling argument yet.

@Dr.PI This hedging/denomination stuff comes up again and again. I think I’ll write that wiki post, so we don’t have to always derail threads.

Sure, go on if you like!

But I think that this article was aimed at people who are few steps behind. Those asking “Why S&P went up by 20% and SMI only by 5%?” and “Why interest rates for CHF saving accounts are so much lower than for EUR and USD?” types of questions.


Here you go: The trading denomination is irrelevant for all assets (and hedging)

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That is exactly the case. My original article simply looked at the final return needed to cover currency depreciation, from a historical perspective. It’s a simple concept, but one that many hobby/wanabe investors don’t account for.

Personally I think the inclusion of the index performance throws it off a bit.

Currency hedging would be a subject for a whole other study. But calculations we’ve done so far internally all confirm what Helix has said.