2011 Mock Question 16 conflict, building, 2011, currency

king_kong

"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

Iginla2011

Is it because he is using cross hedges? So every currency has to be accounted for?

NO EXCUSES

bodhisattva

I think if currency risk can offset each other , it does not need to fully hedge each currency .

wake2000

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 ?

canadiananalyst

As far as I know, residual risk is very low.

justin88

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?

PalacioHill

V5, P304.


In a portfolio with assets in many currencies, the residual risk of each currency is partly diversified away.

--wow, straight from book!