Hi All,
I’m currently working through Reading 19 (Currency Management: An Introduction) in the CFAI text and I’m getting crushed. I’m literally re-reading paragraph after paragraph and it’s just not clicking. Anyone else feel like this? Is there a better resource that you would recommend for getting a good foundational understanding of currency management? CFAI text is far too detailed and it’s just not making any sense to me. Any help or advice is greatly appreciated =)
What is the specific pain point? I’d admit currencies may get confusing.
My current pain point is trying to make sense of how to hedge certain positions. For example, if we’re long P/B, how do we hedge? My understanding is that we’d want to sell the price currency forward, or effectively buy the base currency. I’m also confused on the bid or ask/offer forward points and how to use those and when to use them. Sorry, I know these aren’t very specific pain points, I think I just need to read something that dumbs it down a bit before tackling the CFAI text. Any thoughts?
Always think this way. Price currency is the currency that you have and base currency as some commodity (say car, home etc. Hedging is always taking the opposite position. So if u r long P/B means you are long B (base currency). In order to hedge, you want to sell Base currency and buy Price currency.
on bid offer, same logic…but understand that you are the market player and dealer/broker is quoting bid/offer. Dealer wants to buy Base ccy (think any commodity) at bid (pay price ccy at bid rate) and sell Base ccy at offer (receive price ccy at offer rate). Just think in term of shopkeeper wants to buy low and sell high to earn profit. And you have to take opposite position (buy Base at offer rate and sell Base at bid).
it takes a while to get adjusted. It’s confusing at times but not difficult. Hope that helps.
Thanks, Cric12, that helps. I just need to do more practice problems w/ it to get comfortable. Thanks!