Currencies  

The Guide: Currencies

  • Gain an understanding of how different currency strategies can affect portfolios
  • Comprehend the impact of using currency hedging when investing in non-traditional asset classes
  • Grasp the different methods in judging whether a currency should or should not be hedged
CPD
Approx.60min

Introduction

Investors should have a diversified portfolio of both assets and geographies as a basic rule of thumb. However, the more diversified a portfolio becomes the increasing number of considerations one must have. This is most acute when looking at currency exposure, and the perpetual questions around when and when not to hedge.

Understanding how currencies interact and how their performance can affect a portfolio is important, and merely recognising currency risk is not enough to protect from downside risk.

As currency markets move up and down based on monetary, fiscal and political events - understanding a portfolio's exposure has never been more important.

But how does a portfolio with an array of currency exposures react to different environments, and could such exposure actually increase diversification?

Furthermore, how does one value a currency and what factors should be taken into account when deciding if a currency is over or under-valued?

Such considerations are easier when studying developed market currencies, such as the dollar, sterling or yen. But as emerging markets, and in particular debt from such economies, become more popular, how do portfolio managers contain, or even benefit from, currency volatility?

In this guide

CPD
Approx.60min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. What "modest" currency position is Investec manager John Stopford currently employing?

  2. Which two factors are important for the "optimal" hedging ratio, according to Hermes' Eoin Murray?

  3. According to Signia Wealth, what does unhedged currency exposure increase in the long-term?

  4. What factor contributes to the increase in cost for hedging emerging market currencies, according to Ed Smith?

  5. How much does the Japanese yen represent of the global equity market?

  6. Why is the US-China PPP analysis "probematic", according to Nick Purser?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Gain an understanding of how different currency strategies can affect portfolios
  • Comprehend the impact of using currency hedging when investing in non-traditional asset classes
  • Grasp the different methods in judging whether a currency should or should not be hedged

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