Currency Overlay: A Practical Guide, Second Edition

The much-elevated volatility level of the foreign exchange spot prices and a near-seizure of the foreign exchange forward and swap market at the height of the global financial crisis seem a distant memory for some, but many investors may be feeling distinctly uneasy about the currency risk in their global investment portfolios. In 2010, within a matter of a few months, we saw a euro scare, immediately followed by a US dollar scare. And, not quite on the fringe of the global currency market, there were ominous talks about currency wars . Looking ahead, many investors may be pondering on not only known unknowns but also, increasingly, unknown unknowns - interesting times , Confucius would have wisecracked. The Second Edition of Currency Overlay: A Practical Guide does not attempt to disentangle the dense web of political, economic and sentimental factors that may drive the future moves of world s currencies. Instead, it continues to emphasise the same approach as in the First Edition: measuring currency risk separately in the portfolio, clarifying risk responsibility, using specialists where necessary, and taking control of the currency risk. The underlying message remains unchanged: the future currency moves are hard to predict, it is easy by comparison to get reasonably well prepared. This new edition is full of practical hints and tips on how to get prepared in terms of currency risk management. In the fully updated and expanded Second Edition, you will find: An overview of the overlay industry: managers, users, counterparties, custodians, and consultants Detailed discussions on the practical choices an investor would have to make on the currency management programme and their implications An up-to-date overview on the models and trading strategies researched on and used by practitioners and their performances drivers How to deal with emerging market currencies The reasons behind the increasing use of currency beta indices and the practical relevance of so-called currency alpha-beta separation A practical framework for setting a long-term benchmark hedge ratio Currency Overlay: A Practical Guide (First Edition) was commended for its systematic approach to the subject, its neutral stance and clear structure, its rigorous yet accessible treatment of theories and academic research on the subject, and, above all, its practical how-to tips. The Second Edition retains all these features and is further enhanced by many useful insights and practical solutions. For investors revisiting their currency management policies and practices (or drafting one for the first time), the advice contained in this book is invaluable.