The Savvy Investor Currency Management section of the site holds many articles and white papers on currency management positions, currency outlooks, currency hedging, and of course foreign exchange (FX or forex). Currency market outlook articles and white papers can be found on our ‘Markets Outlook’ page.
Currency management is primarily concerned with currency risk; often also referred to as exchange-rate risk, arising from unfavourable moves in currency exchange rate. Typically, at risk are investors and corporations engaged in cross-border transactions. Tools to potentially protect, or ‘hedge’, against some of these risks include the use of forex contracts, futures contracts, option contracts, or similar derivatives...
Savvy Investor’s ‘research’ library consists of information on managing currency exposure, managing risk, and hedging foreign investments. Throughout these areas, currency markets inherently hold common risk factors: carry, momentum, and value.
Foreign exchange risk management looks to minimise the impact associated by import/export goods and services which undergo transactions, translations, or are subject to economic risk. Certain strategies such as a spot contract, forward contract, or a currency option contract, aim to create ‘hedged’ positions which minimise the above risks and at times, remove underlying ownership risks or counterparty risks.
Many funds and ETFs (exchange traded funds) hedge currency risk using forward contracts, PPP, or purchasing power parities, are the rates of currency conversion which attempt to remove price differentials between different companies. During the moments where this is not feasible, it creates the opportunity for investors to ‘arbitrage’ their positions.
A newer element that has begun to generate a lot of interest is cryptocurrencies. A cryptocurrency, such as bitcoin, is binary-data designed to work as an exchange instrument where individual coin ownership records are stored in a computerised ledger using data cryptography. Investors seek to add Bitcoin, Ether, or other crypto assets to their portfolio as an alternative to mainstream assets as a way to diversify. However, volatility has been one of the main challenges with this type of asset. Operators in the sector are working on technological advances to potentially stabilise volatility and make cryptocurrencies more viable mainstream assets.
Currency Management pertain to:
- Foreign exchange risk
- Carry, momentum, and value factors