What Is an Exchange Rate — The Ratio Between Two Currencies
Phrases like 'the exchange rate went up' or 'a weak won' are confusing, right? An exchange rate is just 'the ratio for swapping two countries' money.' Knowing this is a big help when you invest in overseas stocks.
An Exchange Rate Is the 'Swap Ratio Between Money and Money'
An exchange rate is the ratio when converting one country's money into another's. 'A won-dollar exchange rate of 1,400 won' means you need 1,400 won to buy 1 dollar.
When this number rises (for example, 1,300 won → 1,400 won), it means more won is needed to buy one dollar, so we say 'the value of the won has fallen (a weak won).' Conversely, when the exchange rate falls (1,400 won → 1,300 won), the value of the won has risen (a strong won).
Here's the point that's easy to confuse: 'the exchange rate went up = the won got weaker.' The number got bigger but the won got weaker, so it can feel counterintuitive.
If you memorize 'exchange rate up = weak won = strong dollar' as one set, you won't get confused. It's easy if you think of the won-dollar rate as 'the won price of the dollar.'
How the Exchange Rate Affects Your Investing
For a Korean investing in overseas assets, the exchange rate is a 'hidden return variable.' When you buy a U.S. stock, not only the price movement of that stock but also the change in the won-dollar rate enters into your return.
For example, even if a U.S. stock is unchanged, if the won got weaker (the exchange rate rose) between when I bought and when I sold, the return converted into won increases. Conversely, even if the stock price rose, if the won got stronger, a loss occurs on the exchange rate and the return can be shaved down. In other words, the exchange rate can help you and can also hold you back.
In fact, the won-dollar exchange rate fluctuated broadly in the 1,300 to 1,450 won range around 2024–2025. Because the exchange rate is always changing like this, when you invest overseas you must always keep in mind that 'the stock price and the exchange rate' move together.
No one can precisely predict the specific value or future direction of the won-dollar exchange rate. The 1,300–1,450 won range in the text is an approximate range for that period, and the exchange rate keeps changing.
よくある質問
Q. If the exchange rate rises, is that good for an overseas stock investor?
If you already hold overseas stocks and the exchange rate rises (a weak won), the value converted into won increases, which is favorable. But when buying anew, you have to exchange at a more expensive rate, which is unfavorable. In other words, the exchange rate can be a gain or a loss depending on 'when you buy and when you sell.'
Q. Can't I eliminate exchange rate risk?
You can reduce the impact of exchange rate movements with a method called 'currency hedging.' However, currency hedging has a cost, and you also give up the gain when the exchange rate moves in your favor. So rather than eliminating the exchange rate entirely, it's more realistic to understand and account for its existence.
📋 結果は過去のデータに基づくものです。過去のリターンは将来のリターンを保証しません。
📋 本サービスは投資アドバイスではなく、投資を理解するための教育目的で提供されています。