NO.PZ2022123002000021
问题如下:
Rosario Delgado is an
investment manager in Spain. Delgado’s client, Max Rivera, seeks assistance
with his well-diversified investment portfolio denominated in US dollars.
Rivera’s reporting
currency is the euro, and he is concerned about his US dollar exposure. His
portfolio IPS requires monthly rebalancing, at a minimum. The portfolio’s
market value is USD2.5 million. Given Rivera’s risk aversion, Delgado is
considering a monthly hedge using either a one-month forward contract or
one-month futures contract.
Determine which type of hedge instrument combination is most appropriate for Rivera’s situation. Justify your selection.
解释:
Correct Answer:
The hedge instrument combination most appropriate for Rivera’s portfolio is a dynamic forward hedge for the
reasons noted below.
First, a dynamic
hedge is most appropriate here. A static hedge (i.e., unchanging hedge) will
avoid transaction costs but will also tend to accumulate unwanted currency exposures
as the value of the foreign-currency assets change. This characteristic will
cause a mismatch between the market value of the foreign-currency asset
portfolio and the nominal size of the forward contract used for the currency
hedge; this is pure currency risk. Given this potential mismatch and because
both Rivera and Delgado are risk averse, Delgado should implement a dynamic
hedge by rebalancing the portfolio at least on a monthly basis.
Delgado must
assess the cost–benefit trade-offs of how frequently to dynamically rebalance
the hedge. This depends on a variety of factors (manager risk aversion, market
view, IPS guidelines). The higher the degree of risk aversion, the more
frequently the hedge is likely to be rebalanced back to the “neutral” hedge
ratio.
A forward contract
is more suitable because in comparison to a futures contract, a forward
contract is more flexible in terms of currency pair, settlement date, and
transaction amount. Forward contracts are also simpler than futures contracts
from an administrative standpoint owing to the absence of margin requirements,
reducing portfolio management expense. Finally, forward contracts are more
liquid than futures for trading in large sizes because the daily trade volume
for OTC currency forward contracts dwarfs those for exchange-traded futures
contracts.
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