Currency Hedging Question
Say you have a portfolio invested in EUR equity, fully hedged(using currency forwards) back to USD. Portfolio = 100% Equity
Assume the value of the equity remain same indefinitely
However EUR then tanks, and your currency forwards is well in the money. Due to these (unrealized) currency profits. Now your portfolio = 90% Equity + 10% Cash Equivalent
Question, does that 10% of unrealised cash create an additional currency exposure? If so, is it a EUR or a USD exposure?
To put it another way, if I were to rebalance the currency hedges now, to remain 100% fully hedged, would i now need to take on additional hedging to offset the unrealised profits also?
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