Managing Currency Exposure When Holding Multi Jurisdictional Assets

For internationally mobile professionals, entrepreneurs and cross border families, wealth is rarely confined to a single jurisdiction or currency.

It is common for a British national resident in the UAE to retain UK property, hold US dollar denominated investment portfolios and pensions in sterling, while maintaining liquidity in dirhams. Likewise, a European executive in Dubai may preserve legacy euro assets while building capital in USD structures.

While global diversification may present opportunities, it also introduces currency exposure. Exchange rate movements can influence the value of assets and income when translated into the currency in which future expenditure is incurred.

Currency considerations should form part of a structured financial planning process, particularly where assets, income and liabilities span multiple jurisdictions.

---

Understanding Currency Exposure

Currency exposure arises where assets, income and future expenditure are denominated in different currencies.

For example:

• An individual earning and investing in USD while intending to retire in the United Kingdom
• A professional accumulating USD investments while planning to fund education costs in euros
• A UAE based business owner with GBP property income and internationally diversified portfolios

In each case, exchange rate movements may affect the value of capital and income when converted into the currency in which liabilities are settled.

It is important to note that foreign exchange markets can be volatile. Movements may have a positive or negative impact on portfolio values, income sustainability and overall financial outcomes.

---

Why Currency Risk Is Structurally Higher for International Clients

Domestic investors often operate within a single primary currency. By contrast, expatriates and internationally mobile individuals may:

• Earn in one currency
• Invest in another
• Retire in a third
• Retain legacy assets in additional jurisdictions

This multi currency exposure may increase sensitivity to exchange rate movements.

Without appropriate consideration, currency fluctuations may impact retirement projections, estate planning outcomes and purchasing power over time.

---

Categories of Currency Risk

A comprehensive approach distinguishes between three principal forms of currency exposure:

Transaction Risk

Short term exposure arising when converting funds between currencies, for example when transferring pensions or acquiring overseas property.

Translation Risk

The impact of exchange rate movements on the reported value of foreign denominated assets within a consolidated portfolio.

Economic Risk

Long term exposure where sustained currency movements affect purchasing power, particularly during retirement.

Each form of exposure may require different planning considerations depending on individual circumstances.

---

Considerations When Managing Currency Exposure

There is no universal solution to managing currency exposure. Any strategy should be based on a client’s objectives, risk tolerance, time horizon and intended country of residence.

Common considerations may include:

Alignment of Assets and Future Liabilities

Where future expenditure is expected in a particular currency, it may be appropriate to consider holding assets denominated in that currency. This approach may help reduce the impact of adverse exchange rate movements on planned expenditure.

However, diversification across currencies may also provide benefits and reduce concentration risk.

---

Currency Hedging

Some investment funds offer currency hedged share classes designed to reduce the impact of exchange rate fluctuations between the underlying assets and the investor’s reference currency.

Hedging strategies may reduce volatility but can introduce additional costs and may not eliminate currency risk entirely. They may also limit potential gains from favourable currency movements.

---

Retirement Income Planning

Currency exposure can become more pronounced during the decumulation phase. Drawing income in one currency while incurring expenditure in another may increase variability in real income levels.

A coordinated income strategy that takes currency exposure into account may assist in managing this risk, subject to individual circumstances and suitability.

---

Conclusion

Holding assets across multiple jurisdictions may form part of a globally diversified wealth strategy. However, currency exposure should be understood and considered within the context of long term objectives, anticipated liabilities and risk tolerance.

If you hold assets in multiple currencies and jurisdictions, speaking with a qualified adviser at Blacktower Financial Management (DIFC) Limited can help assess whether your current structure remains appropriate for your individual circumstances and long term objectives.