Schweser seems to be all over the place when discussing currency risk as it relates to international investing. Question: Can currency risk be COMPLETELY hedged away through the use of futures/forwards?
Currency risk cannot be completely hedged away using futures/forwards except if you are 100% sure of what the future investment would be. If you are invested in foreign bonds, it is possible but equities, no way.
Unless you are also hedging the local currency return, you cannot also hedge the currency risk completely. This is because the return on a foreign investment is the sum of: (1) Return of the investment in it’s local currency (2) The local currency appreciation or depreciation versus the investors domestic currency. (3) The cross product of 1 & 2 above. You can normally only hedge (2), which leaves (1) and (3) un-hedged. However, if you also need to hedge (1), you are then enabled to hedge (3) also, because now (1) and (2) are known ex-ante.