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💱 FX · Currency Impact

How Currency Exchange Affects US Stock Returns
— a Won/Dollar Exchange-Rate Guide

For a Korean investor, a US stock is a dollar-denominated asset. We explain how won/dollar exchange-rate moves affect your return and taxes, and how to decide on a currency-hedging strategy.

Written by Dawn · IT Engineer · Published
💡 Key takeaway — Your US stock return = dollar return × the FX effect. Dollar strength is a bonus, dollar weakness is a penalty. Without knowing the exchange rate, you can't know your real return.

How the FX Effect Works

When you invest in US stocks with won, your real return is determined by the dollar-denominated return × the exchange-rate move. For example, if the price rises +10% in dollar terms and the dollar also rises +5% against the won, your won-denominated return is roughly +15.5%. Conversely, if the price is +10% but the dollar is -5%, your won-denominated return comes to only about +4.5%.

Strategy by Dollar Strength/Weakness Regime

  • A dollar-strength regime — holding unhedged US stocks lets the FX gain amplify your return. Favors increasing your dollar-asset allocation.
  • A dollar-weakness regime — an FX loss eats into your return. Consider switching to a hedged product or looking at companies that benefit from dollar weakness (US exporters).

Currency-Hedged ETF vs. Unhedged ETF

A currency-hedged ETF (marked "H") uses futures and similar instruments to strip out the exchange-rate effect. You get only the dollar-denominated return, with no FX effect. An unhedged ETF reflects the exchange-rate move as-is. Hedging carries a cost (the hedging cost), so being unhedged is often the better choice over the long run. If predicting the dollar's direction is difficult, holding unhedged for the long term is recommended as the default strategy.

Exchange Rates and Taxes

US stock capital-gains tax is calculated in won terms. Cost basis = the dollar price at purchase × the exchange rate at that time, and proceeds = the dollar price at sale × the exchange rate at that time. Even with no change in the dollar price, a rise in the exchange rate alone can create a taxable capital gain. DawnScan's tax calculator can compute your exact capital-gains tax with the exchange rate factored in.

See also — check the exchange-rate-adjusted tax calculation method in detail in the complete guide to US stock taxes.
Caution — Predicting the direction of exchange rates is hard even for professionals. All information here is for reference only, and the investment decision and its outcome are your own responsibility.
📮 Daily US Market Morning Brief — We send an analysis of the previous day's top 10 US gainers (TOP10) and what they had in common, every day at 8am (KST). Telegram @dawnbrief · Free · No ads · Not stock recommendations.

Frequently Asked Questions

Does US stock return increase when the dollar rises?

In won terms, yes. For example, even if a US stock is unchanged in dollar terms, if the exchange rate rises from 1,300 won to 1,400 won per dollar, your won-denominated return increases by roughly 7.7%. Conversely, during dollar weakness (a falling exchange rate), even a gain in dollar terms can shrink or turn negative once converted to won.

What is a currency-hedged ETF?

A currency-hedged ETF strips out (hedges) the effect of exchange-rate moves. For example, a hedged product like KODEX US S&P500(H) sees no return impact from won/dollar moves. An unhedged ETF, by contrast, reflects exchange-rate moves directly in its return. Unhedged tends to be favored when you expect dollar strength, and hedged when you expect dollar weakness.

How does the exchange rate factor into tax calculations?

US stock capital-gains tax converts your cost basis and proceeds to won using the exchange rate at the time of purchase and sale, respectively. For example, if you buy at 1,300 won and sell at 1,400 won per dollar, a taxable capital gain arises purely from the FX gain, even with no change in the stock price. Use the DawnScan tax calculator for an exact calculation.

What should I do with US stocks during dollar weakness?

During dollar weakness (a stronger won), your US stocks' dollar-denominated gains shrink once converted back to won. In this case, you could consider switching to a currency-hedged ETF, or look for ways to boost your won-denominated return. Another approach is to focus on US companies that benefit from dollar weakness (exporters, multinationals).
💰
Tax Calculator
Exact capital-gains tax with the exchange rate factored in
📋
US Stock Tax Guide
The exchange-rate-adjusted tax calculation method, fully explained
🔄
Sector Rotation
Identifying sectors that benefit from dollar weakness

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