Since the U.S. dollar is the reserve currency of the world, we as U.S. citizens tend to not think much about rates of exchange into other currencies. Oil is priced in dollars, gold is quoted in dollars and there are many countries in the Caribbean and the Americas where prices at local shops and restaurants will be presented in dollars.
We in the U.S. are beginning to understand that currency exchange rates matter greatly. Currency is where the basic economics of any country come to rest. Those countries with lower fiscal deficits (or even surpluses) and lower trade deficits will have currencies that grow stronger as compared to the weaker countries. This means investments denominated in those strengthening currencies will also perform better, all other things being equal.
Sometimes governments and central bankers will effect policies intended to have a certain currency result. For example, some countries may want a weaker currency to help stimulate exports or some may want a stronger currency to help attract and retain investment. Eventually any such policies give way to the forces of the marketplace, if they are in any conflict with underlying economic facts.
Last Saturday China indicated it would permit its currency to float (within certain constraints) as opposed to their policies of the last 2 years of fixing the exchange rate to the dollar. The market is responding today with increases in Chinese bonds and equities. The Chinese currency situation helps point out the importance of giving serious consideration to the effect of currency exchange rates in the planning and implementation of any investment program.
