International Stocks and Exchange Rate Risk

[ISF]

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I'm just wondering if there is any good, fundamental reason for not hedging.



It reduces return?

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Unless you have a view that the dollar is undervalued relative to what is implied in the futures market then there is no reason to think it would reduce your returns to hedge. At least not by more then the transactions cost.

[ISF]

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I don't see why you bothered replying, but I will take a guess at what you are not understanding, though it could be many things.

Let's say you are going to spend almost all of your life in the U.S. and do not intend to bequeath any money to your ungrateful children or anyone else. You are going to spend it all, and all in the U.S.

So you invest some money in an international stock fund knowing you will eventually sell it and spend the preceeds in the U.S. And assume you are neither a bull nor bear on the U.S. dollar vs other currencies (or explain why you don't like this assumption).

Does that help?

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Do your really think that you are not taking currency risk by having all of your assets in dollars just because you are buying things in the US? In theory one should wantn their cash flows to have he same currency exposure as their consumption. The vast majority of people would get closer to this point by not hedging their international investments.

[spider]

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In theory one should wantn their cash flows to have he same currency exposure as their consumption. The vast majority of people would get closer to this point by not hedging their international investments.

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Are these two sentences not contradictory?

If I buy an unhedged international fund, I implictly convert my dollars to an international basket of currencies and then reverse that when I sell. With a hedged fund, I implicitly keep my money in dollars the whole time. Right? I wonder if we are using the same definition of hedged...