Currency Risk and International Diversification

An Indian investor in US equities who earned 12% in USD but experienced 8% INR depreciation against the dollar made 20% in rupee terms. The same investor in the reverse scenario made 4%. Currency is a silent variable that can double or halve your real returns.

Why This Matters

Currency risk — the impact of exchange rate movements on investment returns when investing across borders — is among the most under-appreciated factors in portfolio management. For Indian investors, the INR has historically depreciated against the USD over long periods (averaging approximately 3–4% annually over the past two decades), which systematically adds to returns on USD-denominated investments and creates a structural tailwind for internationally diversified portfolios.