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At work we were talking about currency hedging our equity index exposures but I am struggling to understand how this happens in a typical iShares ETF.

If we take the Japan ETF IJPN then we see this index is against the Japanese index.

However it is priced in GBP and its base and benchmark currency is USD.

So my question is: What sensitivity does this have to FX (USD/JPY and GBP/JPY) if any and why?

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Unless explicitly mentioned, iShares ETFs do not apply any currency hedging directly. (See the factsheet for the case of IJPN. The base currency is USD merely because it is the common currency for a set of identical funds offered in many different versions around the world. At the end of each day they mark their books in USD, converting their JPY-denominated equities exposures to USD based on current exchange rates. The fund is 100% long JPY-denominated assets. Just to be clear, that means there is no explicit exposure to USD, GBP, or any other currency not part of the underlying index (MSCI Japan in this case).

More recently, iShares has introduced "currency-hedged" funds. See, for example, the fact sheet for the EUR-hedged Japan ETF. The hedging methodology was created by MSCI and is explained here.

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