Investing · General financial education

Currency risk and exchange rates

Currency risk arises when an exchange rate changes the value of a holding in your own currency. Placing that risk is education, not an instruction to trade currencies.

In more detail

An unhedged equity fund with many US-dollar names, booked in a euro account, carries an extra: if the dollar weakens against the euro, the euro value can fall even if local share prices stand still. A currency hedge is a separate tool with its own costs, not free protection.

Background

“World” in the name does not mean “hedged into my currency”. Hedging can reduce currency risk versus a reference currency and add other risks or costs; it does not remove equity market risk. Finmon recommends neither unhedged nor hedged, and no FX trading.

An example

Teaching figure: the share is unchanged in dollars. The dollar falls 10% against the euro. In euro the holding is worth roughly 10% less (before costs and timing). A mechanism, not a trading tip.

A common misconception

If my account is in euro, I have no currency risk.

The account currency is the display. Unhedged foreign-currency holdings still move extra with the exchange rate.

Source: ESMA · Investor Corner. Last reviewed: 2026-10-26. Editorially reviewed on 2026-10-26. Next review 2027-10-26. Version 0.2.0. Finmon explains. It does not advise. Not investment, tax or legal advice.