Explain how currency movements affect asset allocation and planning, and set out techniques for limiting currency risk

What matters is the currency of the client's spending and liabilities. A foreign asset's return to the client is (1 + foreign-currency return) × (1 + change in the foreign currency's value) − 1, so a 5% gain abroad with a 3% currency loss nets about 1.85%. Global families may spend in several currencies, and the plan should match assets to those spending needs, which is a natural hedge. Remaining exposure can be hedged with forwards or other derivatives, weighing hedging cost (driven by interest rate differentials) against the volatility removed and any diversification lost. The trap is hedging everything into a passport or reporting currency when the family actually lives and spends in another.