FX Hedging

This course examines the various approaches to hedging an exposure to changes in exchange rates.

It explains the motivation for doing so, and the difficulties that might arise in creating a fully hedged position as well as explaining the different products which can be used for hedging and the relative features and benefits.


This course if for individuals with a working knowledge of FX and derivative markets.

Learning Outcomes

At the end of this course delegates should understand:


  • The theory and rationale for currency hedging
  • The practicalities of currency hedging and how to calculate a fund’s hedging P/L
  • Benchmarking using MSCI

Course Content

Rationale for currency hedging:

  • Motivations and counterarguments to hedging
  • Asset/currency relative volatilities and correlations

Technical Theory

  • ‘Optimal’ currency weight for minimal variance
  • Volatility impact of hedging

Hedging Products and Practicalities

  • Valuing FX forward and futures contracts
  • Effect of margin/ collateral
  • Active and passive hedging
  • Share class hedging
  • Daily mark-to-market
  • Hedging cost components

Exercises: Calculating the P/L of a fund’s share class hedging trade

Benchmarking Using MSCI

  • MSCI hedged index return
  • MSCI hedge impact

Regulatory Issues

  • ESMA 34-43-296


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