Global Asset Allocation and Currency Risk Management

Hard Asset Allocation Global Asset Allocation

In the context of global asset allocation, an investment manager evaluates various international markets' potential based on macroeconomic indicators and geopolitical risks. The manager is particularly interested in how currency fluctuations may impact the performance of international equities in light of rising interest rates in developed markets.

Given this scenario, which of the following strategies would most likely enhance the portfolio's risk-adjusted return considering international diversification and currency risk?

Increasing exposure to developed market equities while using currency forwards to hedge against currency risk.

Purchasing emerging market bonds, assuming they will not be affected by rising interest rates.

Investing exclusively in domestic equities to avoid any currency and geopolitical risk.

Hint

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