How Vanguard reduces currency risk

February 26, 2014

A video from the Vanguard Perspectives series

Some international bond funds, including Vanguard Total International Bond Index Fund, use a traditional hedging strategy to help minimize the risk caused by fluctuations in the value of foreign currencies versus the U.S. dollar. The strategy allows the fund's total return—income plus any principal change—to remain undistorted, for the most part, by changes in the value of foreign currencies against the U.S. dollar.

Want to know how currency hedging works? Vanguard explains in this video.


  • All investments are subject to risk, including possible loss of principal. Investments in bond funds are subject to interest rate, credit, and inflation risk. Investments in non-U.S. companies are subject to risks including country/regional risk and currency risk.
  • Total International Bond Index Fund is subject to currency hedging risk, which is the chance that currency hedging transactions may not perfectly offset the fund's foreign currency exposures and may eliminate any chance for a fund to benefit from favorable fluctuations in those currencies. The fund will incur expenses to hedge its currency exposures.