nannan66

With, what is I'm assuming to be, a low correlation between the changes in the local currency asset returns and exchange rate, you wouldn't need to hedge the economic risk, only the principal. I remember a problem similar to this in a Finance 101 course I once took at the University of Phoenix. I wasn't exactly sure at the time if minimum variance hedge referred to only the economic risk or transaction risk as well; it refers to the sum of the transaction and economic risk.