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21 currency management (tools (strategies to reduce cost and modify risk…
21 currency management
review of concepts
spot markets
forward
FX swap
currency options
currency risk
return decomposition
volatility decomposition
strategic decisions
IPS
portfolio optimization problem
choice of currency exposures
diversification
cost
locating along the currency risk spectrum
1 passive hedging
2 discretionary hedging
3 active currency management
4 currency overlay
tactical decisions
based on economic fundamentals
based on technical analysis
based on carry trade
based on volatility trading
tools
forward contracts
hedge ratio
roll yield
currency options
strategies to reduce cost and modify risk
over-/under-hedging using forward
protective put using OTM options
risk reversal or collar
put spread
seagull spread
exotic options
summary
hedging multiple foreign currencies
basic intuitions
emerging market currencies
special considerations
non-deliverable forwards