Cross Hedge vs. Proxy Hedge

CFA Level III
#1

Could someone explain what is the difference between cross hedge and proxy hedge, please?

#2

you are CHF performance currency, worried the NZD will devalue.

cross hedge - NZD/EUR forward

proxy hedge - CHF/AUD forward

yes the same sort of thing, but the proxy is finding something similar to what you are hedging against. the cross is something similar to what you are hedging too.

#3

Thanks a lot!

#4

It seems like the official CFA text uses the terms cross and proxy hedges completely interchangeably. The definition for proxy hedge is “see cross hedge.” Am I missing something?

#5

This year’s curriculum doesn’t distinguish between a cross hedge and a proxy hedge.

#6

page 360 footnote 33.

#7

i use the terms interchangeably in my profession but the CFA text DOES make a distinguish

#8

cross hedge is when you are in one currency and want exposure to a third, but that currency pair doesnt exist.

i.e. Buy JPY/AUD, sell AUD/USD, your net position is JPY/USD

proxy hedge is when you want to hedge exposure to the Danish Krone DKK but the liquidty in SEK or NOK is better and less expensive. so you proxy hedge the DKK with hedges in NOK and SEK.