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Currency Exposure

The fraction of portfolio value exposed to a foreign currency.

Currency exposure measures how much of your portfolio's value is denominated in each foreign currency. A 30% EUR exposure means 30% of portfolio market value is in EUR-denominated assets. This exposure determines how sensitive your portfolio is to EUR/USD exchange rate movements. Unhedged currency exposure adds both risk and potential diversification benefits.

Formula
ExposureCCY=MV in CCYTotal Portfolio MV\text{Exposure}_{\text{CCY}} = \frac{\text{MV in CCY}}{\text{Total Portfolio MV}}

Related Terms

FX Risk

Risk from exchange rate fluctuations affecting foreign-denominated assets.

FX Volatility

Standard deviation of exchange rate changes — typically 5-15% annually.

Covariance Matrix

Captures how asset returns move together — the foundation of diversification.