What happens when I invest in Japanese stock on a US exchange?

Question

Ive been very confused lately with exchange rates as I live in UK. At the minute its a great time for sharedealers to invest in US stock market as the pound is very strong. However I cant seem to grasp what happens to my money when I invest on the NYSE in a japanese company such as Toyota. How will the us exchange rate against the yen affect my investment?

A simple case study would be really helpful.

Thanks

Answer 1

The dollar-yen exchange rate will have no effect. If you by Toyota shares from a US broker you'll either be buying shares in Toyota USA or an ADR for the Japanese stock. In either case they are solely US investment vehicles.

However you should think very carefully about making investments through a US broker. There are US tax consequences in this that can get expensive since you are a non-resident alien for tax purposes. All dividends as well as all capital gains will be subject to a flat-rate tax (normally 30%) that is withheld at the source. That's particularly painful for capital gains as it's double the normal rate you would pay if you were a US resident or citizen. You may also be liable for UK tax on that as well, further watering down the profit.

If you don't reside in the US, I would strongly recommend against direct investment in US securities. You can invest in those securities in your home country in most cases without having to pay US taxes on any income or gains involved.

Answer 2

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Answer 3

The yen has an affect on Toyota's earnings and the stock. But as far as your ADR's are concerned its the pound/dollar relationship thats important. Its the denomination of the investment thats important.

Answer 4

I dont see any difference.