Curriculum (Pg 359) says that there is a tendency for investors to shift investments into the perceived safety of reserve currencies, in times of stress. Hence keeping some exposure to the US dollar in a global bond portfolio would be beneficial.
Point understood. However,
For non-US investors, this would mean under-hedging the currency exposure to the USD (i.e., a hedge ratio less than 100%), whereas for US investors it would mean over-hedging their foreign-currency exposures back into the USD.
I dont understand why underhedge or overhedge…
Magician, pls help…
For non-US investors investing in any nation but the US would make it a sensible hedge. For instance investing in an EM currency.
For US investors investing elsewhere would mean they are short the dollar (recall the domestic currency return formula). And so to hedge that, US investors would go long the dollar.
Thanks Saurabh…
Understood your second point…
But not the first…why would any other nation but the US make a sensible hedge?
What I meant to say was for a non-US investor investing say in EMs, going long the dollar then would make a sensible hedge for that investor.
Sorry to have confused you. Didn’t frame it properly.
Since you specifically asked for the magician…
Was kinda expecting you to show up at the first light, on the fifth day. 
Yup… was out in the deep of the Mirkwood forest last few days. Concocted the potion. While on my way back to Rhosgobel got robbed by the scientists of Astra Zeneca…
No…I dint mean only Magician…Of course, its great to get his reply, as he makes it crystal clear. Do not know anyone else in this forum too…
Got it now…Thanks Saurabh.
In R17, under “Strategies to reduce hedging costs”, there is discussion on Put Spread. A put spread is done with Long Put and Short Put where options are OTM. Curriculum states that below the lower strike, there is no hedge protection. However, the Bear Put Spread Strategy that is discussed in the reading on Option Strategies states that we get a limited downside protection in a bear put spread…
I am confused…are these 2 different?
The only difference is in the put spread, your options are both OTM. In bear put, you buy an ITM put and sell an OTM one. What the curriculum is trying to say is that under a put spread, once underlying keeps falling, OTM put might become ITM and deep OTM put will increase too in moneyness and falling value of underlying will cap the profits on long put by your loss on short put. Unlike in a bear spread this cap will be limited due to to the delta exposure you get via ITM put where massive decline in underlying will reward you much handsomely and the OTP put you sold, which will increase in moneyness won’t eat much into your profits due to your ITM put exposure. Thats my understanding. Also remember bear puts are debit spreads (net premium outflow since ITM puts cost more and you buy them).
dint understand…ok I will check…