Thursday, November 24, 2011
Is it possible to use futures contracts to hedge exposure to foreign bonds?
If one were to purchase bonds from a foreign country, like Canada, Australia, etc, can futures be used to hedge exposure to the foreign currency. Also, do FX contracts actually mirror cash/spot prices?|||Sure...you can short (sell) the foreign currency of the country you are investing in. That way if the currency goes down you lose money on your bonds (when you buy back US dollars) but you would make money on your futures contract.
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