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>>...So you can do it but you either hedge and don't gain anything, or you
don't
>>hedge and take a risk on the exchange rates...
>
>Right, but the latter is inherent in the strategy, isn't it?
>I would assume that particular risk is one which the player
>is willing to accept. Otherwise, as you stated, why bother?
>
The way I read the thread was that they thought it was just standard
practice to dive into foreign currencies when the foreign interest rates
were higher, as though cash follows interests rates around the world like
the tides follow the moon.
Of course in the news you always hear that a currency is being driven up by
foreign investment attracted by higher interest rates, so I guess there are
loads of funds chucking their money at the highest yielding currency and to
hell with the exchange rate risk. Oil sheiks I guess. But then you should
never believe what they say in the papers.
Actually I guess half the cash comes from the people who aren't worried by
the exchange rate risk, and the other half comes from the arbitrageurs who
can do the hedging operation at very low cost and so still a profit off tiny
price differentials.
regards
Adam
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