Currency hedging vs No Currency Hedging.

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Anon9001
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Currency hedging vs No Currency Hedging.

Post by Anon9001 » Thu Jul 30, 2020 10:37 am

Due to the difference in short term interest rates between US and India I am getting paid 4.73% annually to hedge USD back to INR. Is there any reason to not hedge the currency? The correlation of the S&P 500 and USDINR is -0.05 not enough to justify investing in zero return asset currency. (I am using fund Parag Parikh discussed before to do this. It invests majority US stocks with some Japanese exposure but tiny compared to US stocks).

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Anon9001
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Re: Currency hedging vs No Currency Hedging.

Post by Anon9001 » Thu Jul 30, 2020 10:42 am

There is no World Index fund here for clarification. Just the Motilal S&P 500 index fund. I don't want to gamble on the exchange rate but I am open to changing my mind.

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Anon9001
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Re: Currency hedging vs No Currency Hedging.

Post by Anon9001 » Thu Jul 30, 2020 10:56 am

Also holding Gold with currency risk of USD at 25% of portfolio. Most of the Gold here is imported. I do not like take extra currency risk if not necessary.

typical.investor
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Re: Currency hedging vs No Currency Hedging.

Post by typical.investor » Fri Jul 31, 2020 3:26 am

If USD short term rates close the gap such that the hedge yield isn’t returning much, that’d be a reason to not do it as cost could outweigh benefit.

If INR is losing value (depreciating), you’d be better off not hedging.

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Re: Currency hedging vs No Currency Hedging.

Post by Anon9001 » Fri Jul 31, 2020 5:22 am

typical.investor wrote:
Fri Jul 31, 2020 3:26 am
If USD short term rates close the gap such that the hedge yield isn’t returning much, that’d be a reason to not do it as cost could outweigh benefit.

If INR is losing value (depreciating), you’d be better off not hedging.
Look at this link:https://www.livemint.com/Money/aOr04wYK ... alued.html

The INR depreciated lower than the inflation differential. Considering the long term currency return is the inflation differential it is much better to not gamble with the exchange rate.

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Anon9001
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Re: Currency hedging vs No Currency Hedging.

Post by Anon9001 » Fri Jul 31, 2020 5:45 am

typical.investor wrote:
Fri Jul 31, 2020 3:26 am
If USD short term rates close the gap such that the hedge yield isn’t returning much, that’d be a reason to not do it as cost could outweigh benefit.

If INR is losing value (depreciating), you’d be better off not hedging.
Also in what World would USA have interest rates close to India? They are the reserve currency and if they raise interest rates capital will flow out of India causing the Gov to increase interest rates. The inflation here is also much higher than USA :beer

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Re: Currency hedging vs No Currency Hedging.

Post by typical.investor » Fri Jul 31, 2020 7:35 am

Anon9001 wrote:
Fri Jul 31, 2020 5:22 am
typical.investor wrote:
Fri Jul 31, 2020 3:26 am
If USD short term rates close the gap such that the hedge yield isn’t returning much, that’d be a reason to not do it as cost could outweigh benefit.

If INR is losing value (depreciating), you’d be better off not hedging.
Look at this link:https://www.livemint.com/Money/aOr04wYK ... alued.html

The INR depreciated lower than the inflation differential. Considering the long term currency return is the inflation differential it is much better to not gamble with the exchange rate.
Which means you’d have been better off not having hedged in that period. Doesn’t it?

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Anon9001
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Re: Currency hedging vs No Currency Hedging.

Post by Anon9001 » Fri Jul 31, 2020 7:40 am

typical.investor wrote:
Fri Jul 31, 2020 7:35 am
Anon9001 wrote:
Fri Jul 31, 2020 5:22 am
typical.investor wrote:
Fri Jul 31, 2020 3:26 am
If USD short term rates close the gap such that the hedge yield isn’t returning much, that’d be a reason to not do it as cost could outweigh benefit.

If INR is losing value (depreciating), you’d be better off not hedging.
Look at this link:https://www.livemint.com/Money/aOr04wYK ... alued.html

The INR depreciated lower than the inflation differential. Considering the long term currency return is the inflation differential it is much better to not gamble with the exchange rate.
Which means you’d have been better off not having hedged in that period. Doesn’t it?
Dude that means if you have gone unhedged even when the currency depreciated you under-performed the inflation difference between the two countries which would have been reflected in the short term interest rates of the two countries. If you done hedged at the time you would have gotten the difference in short term interest rates which would be the inflation differential.

typical.investor
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Re: Currency hedging vs No Currency Hedging.

Post by typical.investor » Fri Jul 31, 2020 7:47 am

Anon9001 wrote:
Fri Jul 31, 2020 7:40 am
typical.investor wrote:
Fri Jul 31, 2020 7:35 am
Anon9001 wrote:
Fri Jul 31, 2020 5:22 am
typical.investor wrote:
Fri Jul 31, 2020 3:26 am
If USD short term rates close the gap such that the hedge yield isn’t returning much, that’d be a reason to not do it as cost could outweigh benefit.

If INR is losing value (depreciating), you’d be better off not hedging.
Look at this link:https://www.livemint.com/Money/aOr04wYK ... alued.html

The INR depreciated lower than the inflation differential. Considering the long term currency return is the inflation differential it is much better to not gamble with the exchange rate.
Which means you’d have been better off not having hedged in that period. Doesn’t it?
Dude that means if you have gone unhedged even when the currency depreciated you under-performed the inflation difference between the two countries which would have been reflected in the short term interest rates of the two countries. If you done hedged at the time you would have gotten the difference in short term interest rates which would be the inflation differential.
Ah yeah sorry. I am having trouble understanding your English.
The INR depreciated lower than the inflation differential.
Suggested to me that depreciation was greater (i.e. the currency fell lower or depreciated lower). I see you mean it depreciated less.

Phrases like "fell lower" and "fell less" mean different things to me.

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Re: Currency hedging vs No Currency Hedging.

Post by Anon9001 » Fri Jul 31, 2020 8:04 am

typical.investor wrote:
Fri Jul 31, 2020 7:47 am
Anon9001 wrote:
Fri Jul 31, 2020 7:40 am
typical.investor wrote:
Fri Jul 31, 2020 7:35 am
Anon9001 wrote:
Fri Jul 31, 2020 5:22 am
typical.investor wrote:
Fri Jul 31, 2020 3:26 am
If USD short term rates close the gap such that the hedge yield isn’t returning much, that’d be a reason to not do it as cost could outweigh benefit.

If INR is losing value (depreciating), you’d be better off not hedging.
Look at this link:https://www.livemint.com/Money/aOr04wYK ... alued.html

The INR depreciated lower than the inflation differential. Considering the long term currency return is the inflation differential it is much better to not gamble with the exchange rate.
Which means you’d have been better off not having hedged in that period. Doesn’t it?
Dude that means if you have gone unhedged even when the currency depreciated you under-performed the inflation difference between the two countries which would have been reflected in the short term interest rates of the two countries. If you done hedged at the time you would have gotten the difference in short term interest rates which would be the inflation differential.
Ah yeah sorry. I am having trouble understanding your English.
The INR depreciated lower than the inflation differential.
Suggested to me that depreciation was greater (i.e. the currency fell lower or depreciated lower). I see you mean it depreciated less.

Phrases like "fell lower" and "fell less" mean different things to me.
Yeah I myself typing this quickly as I have to do something soon so you have to forgive rustiness. I think that considering that I don't know how Rupee will move against USD in future I will go with the hedged fund especially considering the interest rate of 4-6% annually. If I did know what would happen I would consider unhedged S&P 500 index.

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galeno
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Re: Currency hedging vs No Currency Hedging.

Post by galeno » Fri Jul 31, 2020 11:08 am

We are Costa Ricans. We live in Costa Rica. A tiny country in Central America. Our currency, the CRC, is tightly linked to the USD.

Which World Bonds should we hold? USD hedged? Or unhedged?

AGUG or AGGG?
KISS & STC.

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