I’m having trouble understanding whether it is possible to hedge a cross-currency carry trade:
From CFAI: In order to eliminate currency exposure in an inter-market trade, the investor must, explicitly or implicitly, both borrow and lend in each currency.
From Schweser: A cross-currency carry trade cannot be currency hedged because the currency differentials will adjust for interest rate differentials (interest rate parity). An attempt at hedging would negate the interest rate differential that the carry trade is attempting to exploit.
So why can you eliminate currency exposure by taking a long + short position, but you can’t hedge currency risk? I’ve been trying to understand this concept but keep getting confused. @S2000magician if you have any wisdom here, it would be greatly appreciated
Thanks in advance for any thoughts