To achieve maximum returns consistent with an investor's appetite for risk, the correct identification and estimation of all relevant risk factors in a portfolio are necessary. In this paper, we show that currency is an important risk factor to an international investor, and we emphasise that any change in an investor's international currency position may increase or decrease the total portfolio risk, depending on market circumstances. Therefore, the re- ward/risk ratio induced by currency, in line with classic risk factors such as equities, inflation, and credit, has to be regarded as indicative for investment performance. In particular, we attempt to quantify the extent to which such change would impact portfolio risk.view more white papers
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