Comparing Strategic and Tactical Currency Management Approaches

XYZ Capital is a multinational investment firm that is exposed to various currencies due to its global operations. Recently, the firm’s portfolio manager is considering two distinct approaches for managing currency exposure: a strategic approach and a tactical approach. The strategic approach would involve establishing long-term currency positions based on fundamental analyses and macroeconomic forecasts. Conversely, the tactical approach would focus on short-term opportunities in the currency market, taking advantage of market inefficiencies and technical indicators.

Your task is to compare and contrast the strategic and tactical approaches to currency management for XYZ Capital. Discuss the advantages and disadvantages of each method, and provide recommendations on when each approach might be more appropriate. Additionally, consider how factors such as market volatility, economic conditions, and organizational objectives might influence the decision between strategic and tactical management of currency risks.