Currency Risk

rawrschach

Experienced member
1,223 277
I'm trying to figure out how to manage currency risk between a currency that is not easily tradeable and either the USD or GBP.

If I did the following, would I be net neutral in the context of currency risk between currency x and USD? Currency x can easily lose/gain 10% against the USD in any given year.

- put 50% of my account in the non easily tradeable ac at 10% interest pa
- put 50% of my account in a USD account at 0.2% pa

Ideally there would be a leveraged way to counteract the currency risk so I can claim more of the 10% interest but have not been able to find one. Oanda used to offer it but no more.
 

tar

Legendary member
10,443 1,313
You cant be sure it wont move more than 10% against the $ , this wont work unless you find another broker that doesnt charge interest ...
 

rawrschach

Experienced member
1,223 277
Agreed, don't think it will work with leverage as the carry costs will negate any benefit.

Unleveraged is the only way I see it working. If I put in USD bonds at .2% and half in X at 10% then I should be currency neutral, correct?

Could also use bonds but that introduces bond price risk.
 

tar

Legendary member
10,443 1,313
Unleveraged is the only way I see it working. If I put in USD bonds at .2% and half in X at 10% then I should be currency neutral, correct?
.

No you aren't currency neutral , your net worth would be less in $ if X moved against you ...
 

rawrschach

Experienced member
1,223 277
Can you explain why? I don't understand.

If the exchange rate is 100 and I have 100k USD as well as 10000K X then if X/USD depreciates 10% USD/X must appreciate 10% and net currency value will be the same?

edit: I guess I failed to mention that my home currency is X, not USD.
 
Last edited:

tar

Legendary member
10,443 1,313
Example :

Rate is USD=100X

Lets say you have $200 or 20kX

You split your account : $100 + 10K X

Exchange rate changes to USD = 120X

Now you have : $100 + 10KX ( $83 ) = $183 = 22K X

Your net worth will definitely fluctuates , so you are not currency neutral .
 
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