Exchange rate risk cannot be avoided altogether when investing overseas, but it can be mitigated considerably through the use of hedging techniques. The easiest solution is to invest in hedged investments such as hedged ETFs. The fund manager of a hedged ETF can hedge forex risk at a relatively lower cost.

Hedging is accomplished by purchasing an offsetting currency exposure. For example, if a company has a liability to deliver 1 million euros in six months, it can hedge this risk by entering into a contract to purchase 1 million euros on the same date, so that it can buy and sell in the same currency on the same date.

The total hedged return is the sum of the Local Return, Currency Return, and Forward Return and is (0.0091) + (-0.0353) + (0.0315) = 0.53%. The table below provides details on the calculations.

1 – Currency hedging costs are on the rise For foreign real estate investors looking to hedge US- dollar assets, the cost of currency hedging has increased tremendously. Hedging costs are now upwards of 200 to 300 basis points for some cross-border investors.

Money Market Hedge

1. Borrow the foreign currency in an amount equivalent to the present value of the receivable.
2. Convert the foreign currency into domestic currency at the spot exchange rate.
3. Place the domestic currency on deposit at the prevailing interest rate.

There are two basic ways you can separate your investments from the dollar (or any other currency).

1. Keep money in foreign saving accounts or CDs. Invest in foreign companies/stock exchanges that are traded in foreign currencies.
2. Gold or other precious metals, but be careful because the price has already inflated.

While the new coronavirus has spread quickly across the U.S. and wreaked havoc in global markets, the U.S. dollar has been viewed as a safe asset to invest in, at one point soaring 4% on the U.S. dollar index — a basket of major currencies, namely the euro, pound, yen, Canadian dollar, Swiss franc and Swedish krona.

GBP/USD tumbles toward 1.36 amid growing covid concerns GBP/USD has extended its falls well below 1.3650, hitting the lowest since February. The rapid spread of the Delta covid variant in the UK and prospects of further deterioration weigh on the pound. Brexit issues add to the misery.

With the coronavirus pandemic, continued frustrations over Brexit and the UK suffering the biggest economic recession amongst major economies, most bank analysts predict the Pound Sterling will continue to be under pressure in 2021.