What Does Denominated Stock Mean?
- When a stock is denominated in a currency, it means that the stock is expressed in terms of a specific monetary unit. In the United States, when a stock is purchased it is usually denominated, or valued, in U.S. dollars. Depending on the strength of a country's currency, stock and other securities issued by a given country may be issued in its local currency or in a currency that is traded globally, like U.S. dollars or Euros.
- In the last 10 years, the value of the U.S. dollar has declined relative to previous historical values. As a result, the value of the dollar is weak in relation to currencies like the Euro. This means that when an American visits a European Union country, he needs more dollars to buy goods and services than he would have a few years earlier. To better leverage themselves against an unfavorable exchange rate, some Americans have chosen to purchase Euro or other foreign denominated stock.
- When your country's currency is weak relative to other widely used currencies, buying foreign denominated stock and securities can be a smart financial investment. U.S. financial institutions are increasingly offering foreign denominated securities, which can be highly liquid, or easily convertible to cash. By purchasing foreign denominated stock, investors can strength the overall health of their financial portfolio and reduce investment risk. Likewise, by purchasing and holding certain foreign securities, investors can earn a significant return when they convert that foreign currency back into U.S. dollars.
- Many investors will not directly feel the affect of the U.S. dollar's decline in value. Investors who purchase imported goods or frequently travel abroad to European or other countries are more likely to be impacted by the change in exchange rates. Your broker or financial institution can assist you in purchasing foreign denominated stock.
