Can’t figure out the difference. Help!
- Forward Hedging --> Between home currency and bond’s currency 2. Proxy Hedging --> Between home currency and another currency highly correlated w/ bond’s currency due to undeveloped forward markets. 3. Cross Hedging --> Using two currencies other than the home currency
Clarification on Cross Hedge - Use a cross hedge in the following example: Long EUR investment, but expect the GBP to increase more relative USD so you sell forward the EUR for GBP and sell the GBP forward for USD. You replace EUR currency risk for GBP currency risk.
In other words you use cross hedge to take advantage of an expected currency appreciation, so not really a hedge in the traditional sense.
Proxy Hedging --> home currency and third party currency Cross Hedging --> third party currency and local currency
Can the same be said for the commodities hedge? Are there such things as proxy hedge / cross hedge for commodities products?
From what I understand a the structure for a proxy currency hedge is called a cross hedge for everything else besides currencies.