Understanding Currency Overlay Strategy

Very Easy Currency Management Currency Overlay

A portfolio manager is responsible for managing an international equity portfolio that is exposed to various currencies. To mitigate the risks associated with currency fluctuations, the manager decides to employ a currency overlay strategy. This involves taking specific positions in foreign exchange markets to hedge or enhance the portfolio's currency exposure.

Which of the following best describes the primary purpose of a currency overlay in this context?

To eliminate all foreign exchange risk in the portfolio.

To strategically manage the currency exposure to enhance returns or reduce risk.

To create a long-term investment in foreign currencies.

Hint

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