Even though a foreign stock that appears to be overvalued in its own country, the stock may not generate a reasonable return for a U.S. investor if the currency of that country appreciates against the U.S. dollar.

Question

Quizplus · Accepted Answer

This statement is true. Currency exchange rate fluctuations can greatly impact the return on foreign investments for investors in other countries. If the local currency of the foreign stock appreciates against the U.S. dollar, then the return on the investment may be reduced for a U.S. investor, even if the valuation in the foreign country appears to be reasonable.

Even Though a Foreign Stock That Appears to Be Overvalued