Utilizing Derivatives for Risk Management in a Diversified Portfolio

Delta Asset Management is responsible for overseeing a diversified portfolio for a corporate client with substantial exposure to international equities and emerging markets. Due to recent geopolitical tensions and anticipated interest rate hikes, the portfolio manager seeks to implement a derivatives strategy to hedge against potential downside risks. The client has expressed a desire to maintain their equity positions while mitigating the risk of adverse currency fluctuations and stock market declines.

Discuss the specific derivatives instruments that Delta Asset Management could utilize to effectively hedge these risks. In your response, assess the advantages and potential drawbacks of each instrument. Additionally, explain how the proposed hedging strategy aligns with the client's investment objectives and risk tolerance.