how do you manage FX risk when different currencies between operations/fund

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August 18, 2019

by a searcher from University of Oxford in Santiago, Región Metropolitana, Chile

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Reply by a searcher
from IESE Business School in Los Angeles, CA, USA
Enrique - Short to medium term, you can do this through derivatives (forwards/futures/options) or by borrowing/lending in the currency you receive revenues or incur costs. Long term, however, the only way to hedge is operationally, as it becomes more costly to hedge + harder to forecast revenue/cost streams the longer into the future you look. That is naturally hard for a fund investing in foreign currencies (i.e. it's not like a business where you may move operations to countries you have significant revenue in). In the end, there are some things you can do at the portfolio level, but you will likely have to accept some degree of currency risk. The more currencies you invest in, the more this tend to wash out, but there is always the chance the currency you "live in" strengthens long-term compared to the currencies you have invested in.
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from University of Notre Dame in Austin, TX, USA
Enrique, I'm not sure if you were at conference at IESSE last October, but I remember them addressing this on the panels. Here is the video. https://www.youtube.com/watch?v=Y-ENNEkBbyo
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