former

Equity investment is generally risky and gaining exposure to the foreign currency, though will not reduce volatility except if they are negatively correlated but as you rightly said, is not additive. If you want to gain exposure to equity, you are ready to take risk, then why not go all the way and leave equity investment unhedged?

Bond investment are less volatile than foreign currency movements. Investors will only buy bond in a foreign market if the yields are high enough and will therefore hedge the foreign currency exposure in order to enjoy the higher yields. This is where breakeven analysis comes into play... I love CFA!