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1991•Financial Analysts JournalRequires access

Managing the Currency Risk of Non-Dollar Portfolios

Ira G. Kawaller

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Abstract

With the availability of currency hedging instruments-including futures, forwards and options contracts-foreign exchange risk can be isolated from the price risk of the investment evaluated in its home (non-dollar) currency. Managers can thus choose to regulate their currency exposure as conditions dictate. At one extreme, they may choose to maintain their exchange exposure intact; at the other, they may eliminate it entirely.

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What this paper is about

With the availability of currency hedging instruments-including futures, forwards and options contracts-foreign exchange risk can be isolated from the price risk of the investment evaluated in its home (non-dollar) currency. Managers can thus choose to regulate their currency exposure as conditions dictate. At one extreme, they may choose to maintain their exchange exposure intact; at the other, they may eliminate it entirely.

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Available abstract

With the availability of currency hedging instruments-including futures, forwards and options contracts-foreign exchange risk can be isolated from the price risk of the investment evaluated in its home (non-dollar) currency. Managers can thus choose to regulate their currency exposure as conditions dictate. At one extreme, they may choose to maintain their exchange exposure intact; at the other, they may eliminate it entirely.

Key concepts: Currency, Foreign exchange risk, Futures contract, Liberian dollar, Foreign exchange swap, Monetary economics, Business, Hedge

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