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nism-series-va-international-equity-fund-currency-exposure[ MUTUAL FUND DISTRIBUTORS ]

When an Indian resident investor invests in an International Equity Fund investing in US equities (denominated in USD), to which two distinct risk and return exposures are they subjected?

[ A ]The performance of the underlying US equity stocks AND the foreign exchange rate movement between the US Dollar and the Indian Rupee (USD/INR)[ CORRECT ]
[ B ]The price of physical agricultural commodities in Mumbai AND the repo rate set by the Bank of England
[ C ]The gold import tariff set by the Indian government AND the interest rate on Indian Public Provident Funds
[ D ]The real estate stamp duty in Bengaluru AND corporate tax rates in Australia
Takeaway

Option A is correct: The performance of the underlying US equity stocks AND the foreign exchange rate movement between the US Dollar and the Indian Rupee (USD/INR)

Derivation
Investing in international mutual funds entails two distinct exposures: (1) Asset Market Performance: The capital appreciation or dividend growth of the foreign portfolio companies (e.g., US stocks). (2) Currency Exchange Movement: If the foreign currency (USD) appreciates against the Indian Rupee (INR), the investor earns an additional currency translation gain; if the USD depreciates (INR strengthens), the investor's rupee return is reduced. This question tests the dual-driver mechanics of global funds. A frequent misconception is believing international funds are insulated from currency risk.
Why the others fail
B — The price of physical agricultural commodities in Mumbai AND the repo rate set by the Bank of England
US international equity funds are not driven by domestic Mumbai agricultural prices or UK central bank repo rates.
C — The gold import tariff set by the Indian government AND the interest rate on Indian Public Provident Funds
Indian gold tariffs and PPF interest rates have no direct bearing on the performance of US equity securities.
D — The real estate stamp duty in Bengaluru AND corporate tax rates in Australia
Local Indian real estate stamp duties do not affect the valuation of offshore equity mutual fund portfolios.