CHAPTER 13

Currency Hedging for Investors and Companies

Managing exchange-rate risk

Opening question

“Should I hedge the dollar exposure of my foreign shares?”

In this chapter

The three kinds of currency exposure: transaction, translation and economic
How to measure and net an exposure before hedging it
The hedging toolkit: forwards, swaps, options and natural hedges
What hedging really costs: forward points, carry and cash-flow needs
Choosing a hedge ratio: none, full or partial, and the minimum-variance idea
Hedging for Vietnamese and Asian exporters and importers, with a worked example
Why foreign bonds and foreign equities call for different hedging policies
Writing a hedging policy and avoiding common mistakes

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This chapter is in the full book

Chapter 1 is free to read online. The full text of chapter 13 — with its tables, figures, worked examples and practice lab — is available in the complete edition of Forex and Crypto Investing: From Theory to Practice (Volume 3, NXW Investment Library).

Read Chapter 1 free Get the full book — [email protected]

Sections of this chapter

13.1 Two investments in one

13.2 Three kinds of exposure

13.3 Measuring exposure before hedging it

13.4 The hedging toolkit

13.5 What hedging really costs

13.6 Choosing a hedge ratio

13.7 Companies: exporters and importers

13.8 Hedging international portfolios

13.9 A hedging policy and common mistakes

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