Foreign Currency Effects Law and Legal Definition

Foreign currency effects refer to the extent to which the changes in a foreign currency affects the return on a foreign investment. It is the gain or loss on foreign investments due to variations in the relative value of assets denominated in a currency other than the principal currency with which a corporate usually conducts business. A rising domestic currency means foreign investments will result in lower returns when converted back to the domestic currency. To the extent a foreign currency appreciates relative to the dollar, returns on foreign investments will increase in terms of dollars.