This article actually came about because a member of our asked how we manage foreign exchange volatility whenever we invest in foreign stocks or, for that matter, stocks which are denominated in foreign currencies (some local stocks are traded in foreign currencies). I gave him my reply over email and I thought this was useful to also share with our readers at large. So, first things first, what is foreign exchange (forex) volatility? It is basically the amount of risk with the size of changes in forex rates. How does this affect your returns? For example, let’s assume that you’re a Singaporean (and, therefore, your home currency is the Singapore dollar) and you bought XYZ company for USD10. If the USD/SGD exchange rate is USD1.00 to SGD1.40 at that time, then your effective purchase price for XYZ is SGD14. Let’s say that over the next two years, XYZ ......