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Investing versus exchange rates question

  • 22-06-2019 4:39pm
    Registered Users Posts: 1,154 ✭✭✭


    Quick hypothetical regards investing in US based businesses

    I had wanted to put money into shares in Microsoft (or some other US business) for example. However, I have an assumption that the Euro will strengthen against the dollar for the coming future. As such, rather than buying MSFT shares on the Nasdaq, I see they are available on the Xetra in Frankfurt, so could buy there in Euro.. however (yet again :P ), if the Euro strengthens against the dollar, that will put downward pressure on share prices on Xetra in order to avoid arbitrage opportunities appearing against shares on the Nasdaq in dollars.

    Are the above assumptions correct? In this scenario of the Euro strengthening against the dollar, is there no straightforward/simple way of avoiding that risk of investments losing value due to exchange rate changes and as such I’m better off investing in ‘Euro based’ businesses, or would investing in MSFT via Xetra in this example mitigate that risk?



  • Moderators, Business & Finance Moderators Posts: 9,819 Mod ✭✭✭✭Jim2007

    It is too complicated to worry about.

    When you buy any MNC (US or European) you are buying companies that have a high exposure to exchange rates in any case. Part of their profits will be the result of exchange rate gains and losses in any case and will be reflected in company valuations in any case. That is why most funds to not try to hedge - it is too easy to get it wrong and rarely brings much benefit.

    If you are talking bout large amounts of money, then it might be worth hedging the amount you expect to withdraw in then next 12 months or so.