| the ratio at which a unit of the currency of one country can be exchanged for that of another country. |
| rate of exchange n. pl. rates of exchange The ratio at which the unit of currency of one country is or may be exchanged for the unit of currency of another country. |
exchange rate
How do currency exchange rates influence investment values? When the exchange rate between the foreign currency of an international investment and the U.S. dollar changes, it can increase or reduce your investment return. Because foreign companies trade and pay dividends in the currency of their local market, you will need to convert the cash you receive from dividends or the sale of the investment into U.S. dollars. Therefore, if the exchange rate changes significantly between the time you buy and the time you sell, it can sometimes turn a positive return in the investment itself into a loss for the investment in total, or vice versa. International investment returns increase when the dollar weakens in value against another currency, because each unit of foreign currency translates into more U.S. dollars. On the other hand, if the U.S. dollar strengthens against the foreign currency, it translates each foreign currency unit into fewer U.S. dollars and therefore diminishes your returns.Thomas M. Tarnowski, Senior Business Analyst, Global Investment Banking Division, Citigroup, Inc. |
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