How do exchange rate fluctuations impact international investments?

Exchange rate fluctuations can have a significant impact on international investments. When the value of a currency changes relative to another, it affects the returns on investments denominated in that currency. For instance, if an investor holds foreign assets and the local currency strengthens, the value of those assets may decline when converted back. Conversely, a weaker local currency can enhance returns by increasing the value of foreign investments when repatriated. Additionally, fluctuations can introduce volatility in cash flows and influence transaction costs. Investors must consider these dynamics along with economic indicators and geopolitical factors when assessing potential risks and returns on their international portfolios.