I understand cross hedge as Local curency vs a currency similar to home currency, but can it be between a currency similar to the local currency, and a currency similar to the domestic currency? i.e. 2 completely different currencies? A proxy hedge is always Domestic vs similar (e.g. Yen instead of Remimbi)? Thanks
I am fairly confident I remember reading that you can have two completely separate currencies. anyone 2nd this?
A cross hedge is where you agree to pay the foreign currency to receive the third currency. A proxy hedge is the local and a different foreign currency.
By Local I mean the foreign currency. Domestic is the home currency. Metsaregr8 we’re on the same page - I’m just keen to establish if there’s a slightly wider definition to cross hedge.
So if you had a GBP local portfolio and you were a USD domestic fund manager. A cross hedge would be to: Sell GBP and buy EUR, then to sell EUR and buy USD. A proxy hedge would be to sell EUR and buy USD. Is that right?
Cross hedge you are transferring the currency risk for where you are invested into another currency all together. A Proxy hedge you are hedging your investment in a foreign market with a currency that is highly correlated with it because of lack of liquidity in the 1st market.
Cool. So we know: 1. Proxy hedge is domestic vs. other 2. Cross hedge is local vs other Is there a 3. Cross hedge is also other vs. other?