Currency exposure is the degree to which your wealth is affected by movements in foreign exchange rates. It arises whenever your assets, income or liabilities are denominated in a currency other than the one you spend in. The larger the mismatch, the more your net worth swings with exchange rates.
Worked example
A British expat living in Thailand holds savings in US dollars but pays rent in Thai baht. If the dollar weakens 10% against the baht, their real spending power falls even though their dollar balance is unchanged.
Why it matters
For expats and international investors, currency exposure can matter as much as investment performance. Separating genuine investment gains from currency gains is essential to understanding whether a portfolio is actually growing.
Frequently asked questions
Common approaches include holding assets in the currency you spend, diversifying across currencies, or hedging — though hedging adds cost and complexity.