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Currency Strategy A Practitioner s Guide To Currency Investing Hedging And Forecasting Wiley_8

Tham khảo tài liệu 'currency strategy a practitioner s guide to currency investing hedging and forecasting wiley_8', tài chính - ngân hàng, ngân hàng - tín dụng phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 200 Currency Strategy both different from each other. Consequently the way they should be managed should also be different. Having decided to manage a portfolio s currency risk one then has to decide whether the aim is to achieve total returns or relative returns. 10.10.1 Absolute Returns Risk Reduction Just as a corporation has to decide whether to run their Treasury operation as a profit or as a loss reducing centre so a portfolio manager has to make the same choice in the approach they take to managing currency risk. If a portfolio manager is focused on maximizing absolute returns the emphasis in managing their currency risk is likely to be on risk reduction. In order to achieve this they will most likely adopt a strategy of passive currency management. This involves adopting and sticking religiously to a currency hedging strategy rolling those hedges during the lifetime of the underlying investment. The two obvious ways of establishing a passive hedging strategy are Three-month forward rolled continuously Three-month at-the-money forward call rolled continuously The advantage of passive currency management is that it reduces or eliminates the currency risk depending on whether the benchmark is fully or partially hedged . The disadvantage is that it does not incorporate any flexibility and therefore cannot respond to changes in market dynamics and conditions. The emphasis on risk reduction within a passive currency management style deals with the basic idea that the portfolio s return in the base currency is equal to The return of foreign assets invested in the return of the foreign currency This is a simple but hopefully effective way of expressing the view that there are two separate and distinct risks present within the decision to invest outside of the base currency. The motive of risk reduction is therefore to hedge to whatever extent decided upon the return of the foreign currency. 10.10.2 Selecting the Currency Hedging Benchmark The most disciplined way .