Chapter 10: Portfolio Overlays and Currency Management

In this section

• Use of Derivatives for Risk Control
  Use of Derivatives for Risk Control (CFA Level 1): Why Derivatives for Risk Control?, Common Derivatives Used for Risk Control, and Quick Illustrative Diagram. Key definitions, formulas, and exam tips.
• Currency Risk and Hedging Techniques
  Currency Risk and Hedging Techniques (CFA Level 1): Why Currency Risk Matters, Key Hedging Instruments, and Quick Mermaid Diagram: Basic FX Hedging Flow. Key definitions, formulas, and exam tips.
• Overlay Strategies in Equity and Fixed Income Portfolios
  Overlay Strategies in Equity and Fixed Income Portfolios (CFA Level 1): Key Concepts in Portfolio Overlays, Overlay Strategies in Equity Portfolios, and How It Works – A Diagram. Key definitions, formulas, and exam tips.
• Active Versus Passive Currency Management
  Active Versus Passive Currency Management (CFA Level 1): Key Characteristics of Passive Strategies and Pros and Cons of Passive Hedging. Key definitions, formulas, and exam tips.
• Evaluating Results of Currency Overlay Programs
  Evaluating Results of Currency Overlay Programs (CFA Level 1): Test Your Knowledge: Evaluating Currency Overlay Performance and When isolating the currency component in an international. Key definitions, formulas, and exam tips.
• Understanding Forward, Futures, and Currency Swaps
  Understanding Forward, Futures, and Currency Swaps (CFA Level 1): Key Distinctions Among Forwards, Futures, and Swaps, Forwards, and Pricing and Interest Rate Parity. Key definitions, formulas, and exam tips.
• Managing Complex Currency Hedging Strategies
  Managing Complex Currency Hedging Strategies (CFA Level 1): Layered Hedging Structures, How Layered Hedging Works, and Multi-Currency Exposure Considerations. Key definitions, formulas, and exam tips.
• Synthetic Exposure Creation via Derivatives
  Synthetic Exposure Creation via Derivatives (CFA Level 1): Why Synthetic Exposure Matters, Key Building Blocks of Synthetic Positions, and Futures and Forwards. Key definitions, formulas, and exam tips.
• Institutional Practices for Overlay Management
  Institutional Practices for Overlay Management (CFA Level 1): Understanding the Role of Overlay Management, Key Components of Institutional Overlay Practices, and Governance Frameworks. Key definitions, formulas, and exam tips.
• Assessing Overlay Costs and Slippage
  Assessing Overlay Costs and Slippage (CFA Level 1): Understanding Overlay Costs, Defining Slippage and How It Occurs, and Magnifying Effects of High-Frequency Updates. Key definitions, formulas, and exam tips.
• Multi-Currency Portfolios and Hedging Policy
  Multi-Currency Portfolios and Hedging Policy (CFA Level 1): Complexity of Multi-Currency Portfolios, Hedging Objectives and Policy Development, and Permissible Instruments and Hedge Ratios. Key definitions, formulas, and exam tips.
• Risk-Return Considerations in Overlay Implementation
  Risk-Return Considerations in Overlay Implementation (CFA Level 1): Basic Concept of Overlay Strategies, Changing the Risk-Return Profile, and Key Risk Metrics for Overlays. Key definitions, formulas, and exam tips.
• Dynamic vs. Static Overlay Approaches
  Dynamic vs. Static Overlay Approaches (CFA Level 1): Defining Overlay Strategies, Static Overlay: A “Set-and-Forget” Approach, and Dynamic Overlay: Active Adaptation to Market Trends. Key definitions, formulas, and exam tips.
• Benchmarking Overlay Performance
  Benchmarking Overlay Performance (CFA Level 1): Rationale for Overlay Benchmarks, Types of Overlay Benchmarks, and Constructing an Overlay Benchmark. Key definitions, formulas, and exam tips.
• Using Option-Based Overlay for Tail Risk
  Using Option-Based Overlay for Tail Risk (CFA Level 1): Understanding Tail Risk and the Role of Option-Based, Why Options?, and Common Option-Based Tail Risk Strategies. Key definitions, formulas, and exam tips.
• Case Studies of Overlay Strategies in Practice
  Case Studies of Overlay Strategies in Practice (CFA Level 1): Pension Fund’s Duration Overlay, Multi-Asset Overlays for Rapid Rebalancing, and Overlays During Market Stress. Key definitions, formulas, and exam tips.