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>> Also, the dollar is relatively weak right now compared to many foreign currencies. Does this effect the returns that I see in my foreign funds? As the dollar improves will that have an effect or is it simply a function of X number of shares returning Y%? <<

You have to check the fund's prospectus to see if the funds are hedged or unhedged in their native foreign currency.

For example, let's say you have a Europe fund where all the stocks being held are valued in Euros. If the Euro rises against the dollar in an unhedged fund, when the NAV is calculated the exchange rate will provide more dollars per euro and thus grow in terms of dollars. This is the "currency risk" you will see referenced in the prospectus of any stock fund which may hold foreign securities.

If the fund hedges its foreign currency risk, they will purchase some sort of financial instrument (such as futures or options) to eliminate the currency risk. That is, they will hold instruments which will counterbalance the currency risk. So when the euro rises against the dollar, the stocks are worth more dollars because of the exchange rate, but the loss of value in the hedge negates it. Similarly, if the dollar rises, the value of the euro-denominated securities drops in terms of dollars...BUT the hedge rises in value to counteract it.

A fund which has to purchase financial instruments to hedge away most currency risk has extra expenses in trading that instrument, and that will typically be reflected in higher expense ratios for the fund.

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