Key Considerations in Currency Overlay Strategy

Medium Currency Management Currency Overlay

XYZ Asset Management has a global equity portfolio valued at $500 million, primarily invested in US stocks, and is looking to manage its currency exposure through a currency overlay strategy. The firm aims to hedge against potential losses from currency fluctuations, particularly from its investments in Europe and Japan. It plans to implement a currency overlay program to enhance returns while managing risk.

Which of the following statements accurately describes a key consideration when implementing a currency overlay strategy?

Currency overlay strategies should strictly follow the same asset allocation as the underlying investment portfolio to ensure that currency movements do not distort performance.

The primary goal of a currency overlay is to achieve a higher return than the benchmark without worsening the overall risk profile of the portfolio.

A currency overlay program is primarily used to eliminate all currency risk from the underlying investments.

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