The Code and Standards are mandatory for all CFA Institute members and CFA Program candidates. The Professional Conduct Program (PCP) is overseen by the CFA Institute Board of Governors, and it, along with the Disciplinary Review Committee (DRC), ensures compliance…

Managing emerging market currency risk presents a unique set of challenges, with two key considerations at the forefront: Higher trading costs: Many emerging market currencies have thin trading volumes. These occasions increase transaction costs due to broader bid-offer spreads. Additionally,…

In this section, we delve into portfolio management and the complexities of handling multiple exposures to foreign currencies. In such cases, managers must consider the correlation among the currencies present in the portfolio. For instance, one might assume that having…

Managers with the flexibility to make currency exposure risk decisions can deviate from fully hedged portfolios. This leads to strategic considerations on finding the optimal level of portfolio protection and its associated cost. Various strategies are employed to reduce hedging…

Forwards Vs. Futures This section addresses the simplest hedging scenario: a 100% hedge ratio for a single foreign currency exposure. Both futures and forward contracts can be utilized to achieve full currency hedges, but institutional investors typically prefer forward contracts…

When managers pursue active trading strategies, they expose themselves to risk. This risk is due to their market views, which may not always be accurate. Additionally, increased transaction costs add to the challenges they face. As a result, managers need…

Learning Module 1: Overview of Equity Portfolio Management Los 1(a): Describe the roles of equities in the overall portfolio Los 1(b): Describe how an equity manager’s investment universe can be segmented Los 1(c): Describe the types of income and costs…

This section will explore tactical decisions a portfolio manager can make regarding currency risk management. These decisions are driven by the Investment Policy Statement (IPS), which grants the manager some flexibility in handling the portfolio’s currency risk. This flexibility can…

In this section, we will analyze a portfolio from a high-level perspective to make significant strategic choices that will lead to its success. It’s crucial to appreciate that hedging and the factors listed below operate on a spectrum. While the…

The approach to managing currency risk in a portfolio varies widely among participants. Some choose not to take action, believing that long-run returns will eventually mean- revert. On the other end of the spectrum, some participants see an active management…