Fully hedge currency risk and bond exposure?

CFA Level III Portfolio Management
#1

In the reading of currency management, it says gives reasons as to why we should full hedge.

One of the reasons is if we have bond exposure in our portfolio, we should hedge the currency. but I didn’t quite understand this part? Like whats the relationship with bond and currency risk hedging?

#2

Bonds and currency are positively correlated asset classes leading to no diversification. During such cases always hedge currency exposure as you’re having dual exposure to currency risk here.

#3

Methinks something was missing there.

#4

Oh might have forgotten that. Yikes

#5

how are bonds and currency positively correlated? I didn’t quite get that

#6

Suppose that you’re a USD investor holding AUD-denominated bonds. If Australian inflation skyrockets, the bonds’ price will fall, and the USD/AUD exchange rate will also likely decline.

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