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An Asset Manager Has a Mandate to Manage a European

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An asset manager has a mandate to manage a European equity portfolio for a U.S. pension client. The portfolio size is $100 million. The benchmark is some European equity index with a 50% currency hedging target. But the currency management is delegated to a currency overlay manager. The geographical breakdown of the portfolio on January 1 is as indicated below:
 Value  Value  Ey Country  in Lacal Currency  in Dallars  British Stacks  E.10 million $15 million  Euraland Stacks 20 million $23 million  Swiss Stacks  SFr 1.4 millian $1million Total $38million\begin{array} { l c c } & \text { Value } & \text { Value } \\\text { Ey Country } & \text { in Lacal Currency } & \text { in Dallars } \\\hline \text { British Stacks } & \text { E.10 million } & \$ 15 \text { million } \\\text { Euraland Stacks } & \in 20 \text { million } & \$ 23 \text { million } \\\text { Swiss Stacks } & \text { SFr } 1.4 \text { millian } & \$ 1 \mathrm { million } \\\text { Total } & & \$ 38 \mathrm { million }\end{array} a. Assume that the currency overlay manager is neutral on currencies (that is, does not have specific forecasts on exchange rate). What would you expect the currency overlay manager to do on this portfolio?
b. Assume now that the currency overlay manager is bullish on the euro and pound but bearish on the Swiss franc (relative to the dollar). What kind of actions are you expecting from the currency overlay manager?

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