DEAR ALL, I DONT HAVE THE 2008 SCHWESER BOOKS. COULD SOMEONE LET ME KNOW IF SCHWESER HAS INCLUDED IN HIS 2008 NOTES THE SPECIFIC FORMULAS PERTAINING TO THE VARIOUS TYPES OF HEDGES (PROXY, CROSS, STANDARD)? I AM READING FROM THE CFAI MATERIAL AND WHILE LAST YEAR THEY HAD INCLUDED IN THE ASSIGNED READINGS THE FORMULAS FOR EACH ONE, THIS YEAR ONLY A BRIEF NOTE IS MADE AND NOTHING MORE. IF SCHWESER 2008 NOTES HAVE THESE FORMULAS THEN REALLY I WOULD NOT KNOW WHAT TO DO. BEST REGARDS JOHN
all shweser does is define the types of hedges. they do not actually make you do any calcs.
If I’m correct, I don’t believe there an LOS this year that requires calculating the different hedge strategies. That’s why there’s no formulas in Schweser.
I feel better off with fewer calcs:) There is NO formulas in Schweser too and I m reading it now.
last year these cals were required, this year, no.
Wait… I noticed a question in Schweser Pro CD that threw me for a loop… It asked you to calculate the returns for : - standard hedge - proxy hedge - cross hedge Are we not required to do that this year? I didn’t see the formulas anywhere in our materials but noticed a question on it… Can someone confirm please… that would make me feel much better right now lol
Does it fit into one of these?? Reading 46: Currency Risk Management The candidate should be able to: a. demonstrate and explain the use of foreign exchange futures to hedge the currency exposure associated with the principal value of a foreign investment; b. justify the use of a minimum-variance hedge when there is covariance between local currency returns and exchange rate movements and interpret the components of the minimum-variance hedge ratio in terms of translation risk and economic risk; c. evaluate the effect of basis risk on the quality of a currency hedge; d. evaluate the choice of contract terms (short, matched, or long term) when establishing a currency hedge; e. explain the issues that arise when hedging multiple currencies; f. discuss the use of options rather than futures/forwards to insure and hedge currency risk; g. evaluate the effectiveness of a standard dynamic delta hedge strategy when hedging a foreign currency position; h. discuss and justify other methods for managing currency exposure, including the indirect currency hedge created when futures or options are used as a substitute for the underlying investment; i. compare and contrast the major types of currency management strategies specified in investment policy statements.
What’s G all about? Evaluate the effectiveness of the standard dynamic delta hedge? That sounds like calculation type questions… but don’t recall calculations in that area.
Standard Dynamic Hedge is the one where you have an initial Hedge say of 50%, but then something happens so you increase teh hedge to 60% vs keeping it at 50%. I think.
Hrm… don’t think I remember this… HMMM… anyone have a concrete example?