Acitve or Passive currency management

CFA Level III
#1

How do you differentiate them? I always got it wrong.

#2

Is this in reference to the benchmark - I believe reading 41? If so, passive currency management is if you accept what the way the benchmark is structured, and active is any deviation from. Therefore, if the benchmark does not hedge the currency, but you do, this is considered active. If the benchmark hedges currency, and you accept, then this is passive. Not that in both example, you are hedged; even though one is considered active, and the other not.

If your question related to something else, hope the previous did not confuse.

#3

In short, as long as your currency strategy (either hedged or unhedged) deviates from the benchmark, that itself is active management.

#4

I seem to remember that passive management could also entail hedging only the value of your investment. I believe that is considered passive as well. Reading 42 los d. pg 207. It is kind of confusing because they literally state 2 opposing definitions for passive currency management in the same paragraph. I think the benchmark comparison is the one that would show up on the test though.

#5

As @g3r41d said:

  • if the bench is hedged, not hedging is ACTIVE; hedging is passive.

  • if the bench is NOT hedged, not hedging is PASSIVE; hedging is active.

#6

yeah this is such a shitty little trick on their part.

If this gets tested I’ll be pissed off. Looking at the mocks they do seem to throw in a trick here or there but not a lot of them.