Currency Overlay Strategy Analysis for XYZ Asset Management

XYZ Asset Management is a global investment firm that manages a diversified portfolio for its clients, which includes investments in equities, fixed income, and foreign currencies. Recently, the firm has faced significant currency fluctuations that have impacted the overall performance of the portfolio. To mitigate this risk, XYZ is considering implementing a currency overlay strategy.

Define what a currency overlay strategy is and discuss the key objectives that XYZ Asset Management should aim to achieve through this strategy. Additionally, analyze the potential benefits and risks associated with currency overlay management and how it may affect the firm’s investment performance. Conclude your response with recommendations regarding the implementation of the currency overlay strategy for XYZ Asset Management in light of current market conditions.