Exchange Rate
The rate at which two countries' currencies trade — when your home currency weakens against the dollar, the home-currency value of your US stocks changes too, so it directly affects investors outside the US.
Exchange rate = the ratio for converting one country's money into another's
When the dollar strengthens against your home currency, the home-currency value of the US stocks you hold rises; when it weakens, the opposite happens.
In plain terms
An exchange rate is the ratio at which two currencies are swapped. "EUR/USD 1.08" means one euro buys 1.08 dollars. When that number falls, the dollar has gotten stronger (the euro weaker).
If you invest in US stocks from outside the US, the exchange rate directly affects your return. Even if the US stock is unchanged, a stronger dollar helps when you convert back into your own currency, and a weaker dollar can leave you with a loss.
What it tells you
An exchange rate is the result of interest-rate gaps, economic strength, and money flows between two countries colliding. When US rates rise above another country's, money moves into dollars and the dollar tends to strengthen.
For an investor outside the US, buying a US stock means betting on two things at once: "that company's share price" and "the exchange rate." So without watching the rate, you only understand half of your return.
Formula
Exchange rate = the ratio for converting one country's money into another's Example: EUR/USD 1.08 = 1 euro buys 1.08 dollars
What high or low means
When the dollar strengthens against your home currency, the home-currency value of the US stocks you hold rises; when it weakens, the opposite happens.
When the US raises rates or a crisis hits, the dollar as a safe-haven asset tends to strengthen, so looking at exchange rates alongside US interest rates helps you read the flow.
Even if a US stock rises, your home-currency return can be modest if the dollar falls just as much. Conversely, even with a flat share price, a stronger dollar produces a currency gain. A return measured in your own currency combines the price return and the currency move.
Exchange rates are very hard to predict. Rates, trade, and politics are just some of the many variables, so betting on a direction with certainty is risky.
Exchange rates belong to the macro world. This term is background knowledge for understanding market news. (※ Our screens cover the SEC-filed financials of individual companies.)
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see SEC-filing-based financial metrics alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.