Exchange-traded funds (ETFs) make it very easy for investors to get exposure to overseas markets. But that means it's important to understand what potential currency exposures you face. For a UK-based investor in a FTSE 100 ETF, where both the shares in the index and the ETF itself are denominated in sterling, things are straightforward, of course. But for international ETFs there are three types of currency exposure to be aware of.
Only the first of these, the local currency of the underlying securities held by the fund, represents true currency risk. If you invest in an MSCI World ETF, for example, you will have exposure to companies in 23 countries. So this may include firms using roubles, yuan, pesos, or rupees in their everyday activities.
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