Bond denomination currency

Currency classification is made at the bond level and not at the index level as it has an impact on the performance of the index. The bond denomination currencies can be different from the base currency of the index and therefore have an impact on the index performance. By investing in securities denominated in different currencies, investors get exposed to foreign exchange risk.

Hard vs. Soft Currency

To understand the currency classification, investors need to understand the difference between hard and soft currencies.

• Hard currencies are globally traded currencies issued by countries considered as being politically and economically stable. They include the following: AUD, CAD, CHF, EUR, GBP, JPY, USD.
• Soft currencies are other currencies with lower demand and stability in the foreign exchange market. They react to economic or political changes of a country.

Currency Categories

Trackinsight’s classification divides currencies into different categories:

1. Multiple Currencies - For ETFs that do not apply any restriction on bond denomination in their investment process.
2. Multiple Local Currencies - For ETFs that include more than one soft currency but no hard currencies.
3. Multiple Hard Currencies - For ETFs that include more than one hard currency.
4. Single Currencies - For ETFs that only include bonds denominated in a specific currency.