The portfolio has a long exposure to CHF 10,000,000 . To hedge it the portfolio manager sold CHF forward. 1 month later, the value of CHF is 11,000,000 , so to rebalance it as per dynamic hedging we will sell additional CHF 1 million to increase the hedge.
Now, when it comes to currency we over hedge if the currency is expected to depreciate and under hedge if we expect it to appreciate (to capture the upside potential of currency). But why not do the same thing for the asset exposure above?
I might be thinking too much , or I have it all mixed up. But its confusing the hell out of me. Someone kindly help .