Benefits of Currency Forwards in Portfolio Management

Easy Asset Allocation Currency Management

As a portfolio manager for a global investment fund, you are considering various strategies for managing currency risk. One approach is to use currency forwards to hedge against potential fluctuations in the value of foreign currencies that your investments are exposed to. However, you must also take into account the potential impacts on your returns, fees associated with hedging, and the correlation of currencies with the underlying assets.

Which of the following statements best describes the primary benefit of using currency forwards in portfolio management?

Currency forwards can guarantee returns on the underlying asset by eliminating all currency risk.

Using currency forwards allows for predictable cash flows in the investor's base currency.

Currency forwards enhance diversification by allowing unhedged exposures to foreign currencies.

Hint

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