"In portfolios with assets in many currencies, the residual risk of each currency is partly diversified away."
How does this conflict with multicurrency hedging? When building a multifactor model, this is taken into account in order to choose the fewest number of currencies.
NO EXCUSES作者: Iginla2011 时间: 2011-7-11 19:28
Is it because he is using cross hedges? So every currency has to be accounted for?
NO EXCUSES作者: bodhisattva 时间: 2011-7-11 19:28
I think if currency risk can offset each other , it does not need to fully hedge each currency .作者: wake2000 时间: 2011-7-11 19:28
I got wrong too. But I think this is a problem of wording. The question asked : Which is "least likely" supports his recommended hedge structure.
According to fact 2, there is no need to hedge at all. So, this does not support his recommended hedge structure. Am I right ?作者: canadiananalyst 时间: 2011-7-11 19:28
As far as I know, residual risk is very low.作者: justin88 时间: 2011-7-11 19:28
All 3 facts are correct statement...Fact2 is best answer, I might get it right because of either lucky or thinking that Fact1&3 support his recommendation well.
Can the residual risk be diversified away?作者: PalacioHill 时间: 2011-7-11 19:28
V5, P304.
In a portfolio with assets in many currencies, the residual risk of each currency is partly diversified away.
