Timeline for Offsetting currency fluctuations with investments abroad
Current License: CC BY-SA 4.0
9 events
| when toggle format | what | by | license | comment | |
|---|---|---|---|---|---|
| May 6, 2019 at 14:46 | comment | added | Acccumulation | @weltschmerz Currencies are simply units for measuring value. If you measure something in feet, and measure it it in meters, and multiply the first number by the feet-to-meters conversion factor, you'll get the same number. The only way this wouldn't work is if there's some major friction, such as a country having restrictions on currency or security trading. | |
| May 5, 2019 at 19:14 | comment | added | Dennis Hackethal | That makes sense, thank you. Does this work only for ETFs or for mutual funds as well? Or more broadly speaking, what asset classes does this not work for? | |
| May 2, 2019 at 14:47 | comment | added | Acccumulation | @weltschmerz Suppose an ETF is trading at $100 in the US and €80 in Europe. The current exchange rate is 1 € = $1.12, so someone could buy a share of the ETF in Europe for €80, sell it for $100 in the US, then take that $100 and exchange it for €89.44. This would net them €9.44 of free money. This is known as "arbitrage". If this happened, it would rive up demand for the European ETF and drive up the supply of the US ETF, raising the price of the former and lowering the price of the latter until they are equal. | |
| May 2, 2019 at 4:40 | comment | added | Dennis Hackethal | I'm basically trying to find variables that I could change that would break this :) Another is this: would it still work if you invested not in a European fund, but an Asian one, all else being equal? | |
| May 2, 2019 at 4:40 | comment | added | Dennis Hackethal | At the end of each day, that is. | |
| May 2, 2019 at 4:32 | comment | added | Dennis Hackethal | For example, does this mean for a European mutual fund that when its value is determined at the end of the day, the same fund's value in USD traded at an American exchange is calculated by taking that value times that day's exchange rate? | |
| Apr 30, 2019 at 21:27 | comment | added | Acccumulation | @weltschmerz The value of the ETF is the same in both cases, so the amount of Euros that you get for selling it is the same. Can you be more clear as to what you're confused about? | |
| Apr 30, 2019 at 21:23 | comment | added | Dennis Hackethal | I could see that being true until before the last step in the process: exchanging USD for euros again. If the exchange rate is not favorable, it would discourage you from changing to euros. But I think both articles there would be no unfavorable exchange rate at the end due to some mechanism I don't yet understand. | |
| Apr 30, 2019 at 20:35 | history | answered | Acccumulation | CC BY-SA 4.0 |