mar350

the show NY Wrote:
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> actually this is trickier than i thought. i
> misread at first. the foreign currency (the
> pound) is actually appreciating. but the investor
> believes that it will appreciate less than the
> market says it will.
>
> so i think he should hedge. he should go long
> pound in the forward market.
>
> is that right?


Yep that was my thinking as well. Best way to remember this IMO is this: if the FC appreciates more or depreciates less than that predicted by IRP - Hedge. If opposite, do not hedge.

You can memorize that or sit back and think about it for a second: if I hold an asset in the UK and I think the pound is going to appreciate less than what the forward rate says, I should lock in the forward rate because its higher -> I'll get more for my money this way.