Dynamic Currency Management Strategies

Medium Asset Allocation Currency Management

Alex is a portfolio manager at a global investment firm. He manages a diversified portfolio of international equities and bonds. Recently, the firm has noted increased volatility in currency markets, particularly with the euro and the US dollar. In response, Alex is considering adjusting his portfolio’s currency exposure to better manage potential risks associated with currency fluctuations.

The firm's investment policy statement allows for active currency management as a means to enhance returns and mitigate risk. Alex believes that strategically adjusting the portfolio's currency exposure could reduce currency risk while maximizing investment opportunities. He evaluates three different strategies for managing currency within his portfolio.

Implement a hedging strategy focusing solely on the euro, as it has been historically more volatile than other currencies.

Utilize a dynamic currency overlay to manage currency exposures, adjusting allocations based on currency forecasts.

Add a passive currency exposure strategy that mimics the currency composition of the portfolio’s underlying assets.

Hint

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