The forward rates are in agreement with the interest rate differentials and indicate: FC1 will depreciate 1.3% and FC2 will depreciate 1.5%.
Lets say we expect FC1 to depreciate only 0.5% and FC2 to depreciate only 1.1%. Why should we hedge FC2 into FC1?作者: strikethree 时间: 2011-7-13 13:22
So bpdulog, trying to decipher what you said:
Since the differential between Forward Rate and Expectation is 80 bps in FC1 vs only 40 bps in FC2, the aim here is to do a Cross Hedge by taking an active position on a Forward between FC1 and FC2. This strategy will make money to partially offset the currency loss on the original investment in FC2.作者: pennyless 时间: 2011-7-13 13:22
If you look at it from any angle, FC1 will depreciate less than FC2 which is good.
