Currency Overlay Strategy Objectives

Hard Currency Management Currency Overlay

A global investment manager oversees a multi-currency portfolio, which includes allocations in euro, yen, and British pound denominated assets. The volatility of currency returns has led the manager to consider implementing a currency overlay strategy to enhance portfolio performance and mitigate currency risk.

The currency overlay strategy aims to achieve predetermined currency exposure levels while allowing deviations to capitalize on opportunities. However, the manager faces challenges regarding the selection of benchmarks and the execution of trades.

Given this scenario, which of the following best describes the primary objective of a currency overlay strategy in this context?

To completely hedge all currency exposure to eliminate any currency risk associated with the underlying assets.

To manage currency risk actively while maintaining some currency exposure to benefit from favorable exchange rate movements.

To only speculate on currency movements without regard to overall portfolio performance.

Hint

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