I was going through the EOCs for currency and got confused when I came to question # 12. Are you going to hedge the currency exposure if you believe that market are efficient? I do not make the connection between the two.
Thanks in advance.
if the market is efficient, current currency value reflects all information available determining its value, so over the long run currency value tends to revert to its intrinsic value and tends to be stable. thats why the best course of action is not to hedge because the cost associated with hedging is not justified.
you can relate this scenario to strong form of EMH. i think its similar idea. this is my view tho. others please comment. i hope this helps.