标题: Currency Risk - Can it be hedged away? [打印本页] 作者: Chuckrox8 时间: 2011-7-13 16:44 标题: Currency Risk - Can it be hedged away?
Schweser seems to be all over the place when discussing currency risk as it relates to international investing.
Question: Can currency risk be COMPLETELY hedged away through the use of futures/forwards?作者: Windjammer 时间: 2011-7-13 16:44
Currency risk cannot be completely hedged away using futures/forwards except if you are 100% sure of what the future investment would be. If you are invested in foreign bonds, it is possible but equities, no way.作者: nannan66 时间: 2011-7-13 16:44
Unless you are also hedging the local currency return, you cannot also hedge the currency risk completely.
This is because the return on a foreign investment is the sum of:
(1) Return of the investment in it's local currency
(2) The local currency appreciation or depreciation versus the investors domestic currency.
(3) The cross product of 1 & 2 above.
You can normally only hedge (2), which leaves (1) and (3) un-hedged. However, if you also need to hedge (1), you are then enabled to hedge (3) also, because now (1) and (2) are known ex-ante.
