HOW IS PRICING FOR INVESTMENT FUNDS WITH FOREIGN CURRENCY-DENOMINATED UNDERLYING ASSETS DETERMINED?

Investment funds may include financial assets denominated in foreign currencies within their portfolios. These assets may consist of foreign stocks, eurobonds, international debt instruments, and various foreign currency-based capital market products.

When an investment fund holds foreign currency-denominated assets in its portfolio, the fund may be affected not only by the performance of those financial instruments but also by fluctuations in exchange rates. As a result, the question “How is pricing determined in foreign currency-based investment funds?” has become one of the frequently searched topics in financial markets in recent years.

The main factor in fund pricing is the calculation of the current market value of the assets held in the portfolio. If the financial instruments in the portfolio are priced in foreign currencies, their Turkish lira equivalent may be determined based on the relevant exchange rate.

HOW DO EXCHANGE RATES AFFECT FUND PRICES?

If a significant portion of an investment fund’s total value consists of foreign currency-denominated underlying assets, exchange rate movements may play an important role in the fund’s performance.

In particular, if at least 80% of the fund portfolio consists of foreign currency-based assets and no hedge transactions are applied against currency risk, the fund price may become more sensitive to exchange rate fluctuations.

In this process:

• increases in exchange rates,
• decreases in exchange rates,
• price movements in international markets
  may all affect the total value of the fund.

Fund performance may be influenced not only by exchange rate movements but also by the market performance of the financial assets held in the portfolio.

WHAT IS A HEDGE TRANSACTION?

Some investment funds may apply hedge strategies to reduce exchange rate risk. Hedge transactions are financial methods designed to limit the impact of fluctuations caused by currency movements.

However, not every investment fund applies hedge strategies. As a result, some funds may show greater sensitivity to exchange rate movements.

Fund prospectuses may include details such as:

• investment strategies,
• portfolio allocations,
• risk levels,
• hedge applications.

HOW DO FOREIGN CURRENCY-BASED ASSETS AFFECT FUND PERFORMANCE?

Pricing in foreign currency-based investment funds may be influenced by a two-sided structure.

These factors may include:

• price changes in the financial instruments held in the portfolio,
• movements of the related foreign currency against the Turkish lira.

For example, even if the price of a foreign stock remains unchanged, fluctuations in the relevant exchange rate may still affect the fund’s value in Turkish lira terms.

Similarly, simultaneous changes in both exchange rates and financial asset prices may lead to different impacts on fund performance.

WHY ARE FOREIGN CURRENCY-BASED INVESTMENT FUNDS GAINING ATTENTION?

As access to global markets becomes easier, interest in foreign currency-based investment instruments may also increase. International market developments, central bank decisions, and exchange rate movements are among the factors that can bring investment funds into greater focus.

For this reason, portfolio structures, underlying asset types, and pricing mechanisms of investment funds remain among the closely followed topics in financial markets.