What is it and what is the calculation?
1 + cov(Rlocal,Rccy)/var(Rlocal) hedge ratio necessasry to hedge both returns in foreign currency (translation risk) as well as the risk associated with the correlation between ccy and asset value (economic risk)
is that in an LOS? damn
zoser55 gets the points!
Minimum Variance Hedge = Hedge Translation risk + Hedge Economic risk h = ht + he ht = 1 , most of the time he = cov(Rlocal,Rccy)/var(Rlocal) (as zoser55 said above)
great i can go to sleep early on a happy note …lol … is it saturday yet…jeez last 2 exams i was so anxious that the day was coming… this time i’m just so bored with cfa allready…let’s just get it over with allready
Your notation is different, but i think the Rs are reversed. v. 5 page 271 1 + cov(R,s)/var(s) Am I reading this right?
okay so that’s something else I have to review tomorrow.
pretty easy subject, except that schweser seems somewhat vague and contradictory. but you can figure it out from what they do. classic type question they will ask. some of you could probably figure it out having seen it a couple of times, but not remembering what it is.
Are you sure its not? 1 + cov(Rlocal,Rccy)/var(Rccy)
avinand Wrote: ------------------------------------------------------- > Are you sure its not? > > 1 + cov(Rlocal,Rccy)/var(Rccy) i think that’s what it is… the 1 is Ht, the second term is He… MWT and i had a spat about it, he was probably more right than me. but schweser is very, very confusing in the way they do it. they throw in a different regression, which also works, but it’s different than how they teach it (and at this time, i don’t have time/inclination for that… and i don’t think of this as a college type exam where they throw in interesting wrinkles and it’s fair game)