FX Effect5 分で読めます

How Exchange Rates Change Your Return

Even if the U.S. S&P 500 rose 10%, your return may not be 10%. For a Korean investor who invests in won, the exchange rate is a major variable.

What Is the FX Effect?

Consider a Korean investor investing in an S&P 500 ETF (denominated in dollars).

At purchase: dollar asset $100, exchange rate 1,300 KRW/USD -> investment of 130,000 KRW At sale: dollar asset $110 (+10% rise), exchange rate 1,200 KRW/USD Converted to won: $110 x 1,200 KRW = 132,000 KRW

The dollar-based return is +10%, but the won-based return is only +1.5%. The dollar weakened and the exchange rate fell by 100 KRW, which ate up most of the gain.

The reverse is also possible. Even if the dollar asset falls -5%, if the exchange rate rose enough, it could be a gain in won terms.

The Real Impact of Exchange Rates on Returns

Historically, the USD/KRW exchange rate has shown large swings. During the 1997 IMF foreign-exchange crisis, the rate spiked from the 900s to the 1,900s, and during the 2008 financial crisis it surged from the 1,000s to the 1,500s.

During these periods, Korean investors who held U.S. assets saw their losses reduced, or even turned into gains, thanks to the rising exchange rate even when the dollar assets fell. Conversely, during periods of dollar weakness (mid-2000s, 2020, etc.), dollar-asset returns were trimmed in won terms.

Over the long run, the FX effect works both ways, and over the very long term (20+ years) the asset's own return dominates the FX effect.

FX Hedging: Necessary or Not?

FX hedging is a way to eliminate exchange-rate risk. Currency-hedged ETFs are a representative example.

The upside of hedging: only the asset's own performance is reflected, regardless of exchange-rate movements. The downside of hedging: hedging costs (0.5-1% or more per year) arise, and you give up gains when the dollar strengthens.

From a long-term investor's perspective, many experts say "once you factor in hedging costs, hedging may not be advantageous over the long run." The judgment can differ depending on your sensitivity to short-term volatility and your investment horizon.

How This Service Handles Exchange Rates

This service lets you choose between two results when calculating overseas assets.

Dollar-based return: reflects only the asset's own price movement, without exchange-rate changes. Won-converted return: applies the exchange rate at each investment point to calculate the actual return in won terms.

The difference between the two figures is the FX effect. If the dollar-asset return is higher than the won-converted return over the same period, the won was strong during that period; the reverse means the won was weak.

よくある質問

Q. Should I always hedge the exchange rate?

It depends on your investment horizon and purpose. For a short-term (1-3 year) investment, exchange-rate risk is large, so hedging can be useful. For a long-term (10+ year) investment, the FX effect tends to offset over the long run, and hedging costs can become a burden. Generally, many investors in major index ETFs choose to hold long-term without hedging.

Q. How does this calculator collect exchange-rate data?

It uses the Bank of Korea reference rate or monthly exchange-rate data from major financial data providers. For recurring investing, the exchange rate on each purchase date is applied. Check the methodology page for the exact source of the exchange-rate data.