Exchange rate risk is one of a series of risk factors that affect the investment income of overseas funds. What is exchange rate risk? How important is it? What methods do fund managers take to deal with it? How should individual investors view exchange rate risk? How exchange rate fluctuations affect the return exchange rate strategy may be complicated, but in the prospectus, the exchange rate risk is simple and clear: it means that the exchange rate has been fluctuating up and down. If the stock you hold is denominated in a foreign currency, when the currency depreciates against the US dollar, you will get a lower return if the exchange rate is stable or appreciated relative to this currency. For example, even if the stocks in the fund portfolio rise in the local market, overseas equity fund holders who have not hedged may still lose money. On the other hand, if the foreign currency strengthens against the US dollar, the unhedged fund holders will get an extra "bonus". How does the fund deal with exchange rate risk? Most fund companies do not hedge their exchange rates with the same amount. In fact, in the stock market, few funds completely hedge against the US dollar. For international equity funds, it is more common not to hedge the exchange rate at all. The general reason given by fund managers is that they would rather concentrate on stock selection, industry research and regional theme research than try to figure out the changes of exchange rate. Many fund companies also believe that one of the reasons why holders choose international equity funds is that they can get the possible benefits from exchange rate fluctuations by diversifying their investments, so these investors do not want to hedge. Even so, occasional hedging has become more and more common over the years. For example, at a certain point in time, combined with the current economic situation and the fluctuation range of the past historical exchange rate, the fund manager may feel that the pound has been too strong recently. At this time, he will hedge the exchange rate risk until the pound exchange rate falls back to the more reasonable level he expected. At that time, he will return to the non-hedging camp. There are also some fund managers who prefer the stocks of certain countries, partly because they expect the country's exchange rate to fall, which will give the country more export advantages. At this time, they will hedge the exchange rate risk while buying the country's stocks. In fact, some funds do not have their own judgment on the direction of exchange rate fluctuations. They hedge the exchange rate only because it is too heavy for them to continue to invest in a country's stock. They adopt this strategy to ensure that they "bet" on stocks that they are more sure of, rather than exchange rates that they are not good at. How should individual investors view the exchange rate? It is very important for individual investors to understand the impact of exchange rate on investment. Sometimes, the impact of exchange rate fluctuations on you will end in a short time, but it is wrong to treat the exchange rate as a fixed balance. Over the years, the appreciation of foreign currency has increased the income of overseas stock funds and overseas bond funds. In this sense, the absence of foreign exchange exposure is a risk in itself. Despite the appreciation of the US dollar this year, many market observers believe that when events like the European debt crisis cause panic, the US dollar will face the risk of long-term decline. By investing in international funds, investors can help offset the high cost of foreign currency appreciation caused by foreign exchange risk exposure. For example, when American residents buy imported goods and spend holidays overseas, they will inevitably be affected by the depreciation of the dollar. Although the holders of overseas stock funds and China Shipping Bond Funds may have assumed certain foreign exchange risks, some investors expect to bear additional exchange rate fluctuations without increasing the price fluctuations of stocks and bonds denominated in foreign currencies. In fact, even if you "bet" on the appreciation of foreign currency, the decline in stock price will offset this advantage, which is often disappointing. These investors can choose futures contracts or open foreign bank accounts, but the opening and maintenance of these accounts are more complicated. A simpler choice is foreign exchange ETF, which is a new investment product in recent years. Be careful when you consider participating in this kind of "gambling" investment. Forecasting exchange rate fluctuations is a difficult "game", and even those who have spent their whole lives studying this game are often frustrated. This is also one reason why many smart international fund managers give up speculative exchange rate fluctuations or rarely participate in them.