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Trading Costs Associated with 100% foreign-currency hedged strategy

January 12, 2018
  • Maintaining a 100% hedge requires frequent rebalancing. This “Churning” adds to hedging costs.
  • A long position in currency options requires an upfront payment. If the option expires out-of-the-money this is lost.
  • “Rolling” forward contracts forward may require cash to settle, cashflow management costs may increase as interest rates increase.
  • Overhead costs for personnel and technology to administer the currency hedge.
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