Currency Overlay looks at all the components that make up an overlay mandate and the decisions and analysis leading up to it. It is written in an accessible style, designed for the interested asset manager, pension fund manager, investment consultant, trustee or student.
Many of the author′s analyses start from first principles. Concepts important to the case are fully explained before utilising them, allowing the reader with no prior knowledge of the subject to exercise independent judgement. The author makes wide use of self–contained ′boxes′ to illustrate and explain particular elements or concepts.
Currency Overlay covers, amongst other topics:
∗ The theoretical case for eliminating currency risk in international portfolios
∗ The interplay between asset returns and currency returns, and the effect of this on hedging decisions
∗ Benchmarks – their construction and strategic role
∗ Least–cost passive overlay
∗ The structure of the currency market, and its ′inefficiencies′
∗ Active overlay styles
∗ Active overlay both restricted and unrestricted (currency alpha)
2. The Problem.
3. Currency Hedging.
4. Foreign Exchange Market – History and Structure.
5. Theory of Currency Hedging of International Portfolios.
6. Passive Currency Overlay.
7. Currency Overlay Benchmarks.
8. Overlaying Different Asset Classes.
9. Is the Currency Market Efficient?
10. Active Currency Overlay – Management Styles.
11. Active Currency Overlay – Evidence of Performance.
12. Implementing Currency Overlay.
13. Looking Ahead.
Appendix 1. Boundary Conditions for Forward Arbitrage.
Appendix 2. Lognormal Returns.
Appendix 3. AIMR® Report.
Appendix 4. Sample Investment Guidelines.
The author has been in the forefront of the development of currency overlay since its inception, and is acknowledged as one of the leading figures in the overlay industry. He has authored numerous articles on currency and related topics, and is an external MBA lecturer at the Judge Institute at Cambridge.