Foreign Exchange Hedging Question. position, currency, comparable, 2011

jbaldyga

An asset manager says he has perfectly hedged an equity portfolio that is denominated in a foreign currency by only using forward currency contracts. We know then that the:
A) number of contracts used is equal to that used on a comparable equity position.
B) asset manager is not telling the truth.
C) number of contracts used is greater than that used on a comparable equity position.



Edited 1 time(s). Last edit at Tuesday, May 24, 2011 at 02:26PM by Paraguay.

ll11

B he should hedge the local market risk together

justin88

goodman2011 Wrote:
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> B he should hedge the local market risk together

It's actually that they don't know gain/loss ex-ante.

I just thought the answer was interesting.

"You're lying!"

To be perfectly hedged to foreign movements have to know terminal value of portfolio as well.



Edited 1 time(s). Last edit at Tuesday, May 24, 2011 at 02:37PM by Paraguay.