Hedging multiple currencies
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strikershank
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- Jun 18, 2026
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proxy i believe because he’s using another asset that is highly correlated with the risk exposure on swiss stocks.
but i always get these wrong so you should probably be a contrarian on my reply.
but i always get these wrong so you should probably be a contrarian on my reply.
hala_madrid
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- Jun 18, 2026
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not 100%, but I think that, being a usd investor hedging a chf denominated asset:
if he uses futures on chf usd = fwd hedge
if he uses futures on eur usd = proxy hedge
if he uses futures on chf eur = cross hedge
if he uses futures on chf usd = fwd hedge
if he uses futures on eur usd = proxy hedge
if he uses futures on chf eur = cross hedge
comp_sci_kid
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- Jun 18, 2026
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i believe that is proxy for the same reason as strikeshank stated. cross would be using currency that is highly correlated with usd
corpfinguy
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hala_madrid Wrote:
——————————————————-
> not 100%, but I think that, being a usd investor
> hedging a chf denominated asset:
>
> if he uses futures on chf usd = fwd hedge
>
> if he uses futures on eur usd = proxy hedge
>
> if he uses futures on chf eur = cross hedge
I don’t understand the rationale behind using a chf eur futures when the domestic currency is usd?
——————————————————-
> not 100%, but I think that, being a usd investor
> hedging a chf denominated asset:
>
> if he uses futures on chf usd = fwd hedge
>
> if he uses futures on eur usd = proxy hedge
>
> if he uses futures on chf eur = cross hedge
I don’t understand the rationale behind using a chf eur futures when the domestic currency is usd?
hala_madrid
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- Jun 18, 2026
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yes, you are right, I guess it is not the best example… my point is to use a currency other than usd (if you are usd)
JoeyDVivre
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- Jun 18, 2026
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Everywhere but in CFAI curriculm proxy hedge = cross hedge. Anyway, in these FX things above is proxy hedge. So in a proxy hedge, if you owned swiss stocks you would short CME euro futures as a proxy for shorting CHF futures. In a cross hedge, you probably wouldn’t do CHF/EUR but something like CHF/CAD (even though that’s pretty stupid). The idea is that a cross hedge substitutes for your own currency and a proxy hedge substitutes for the other currency. The CHF/EUR thing is just odd because the EUR is much more correlated with CHF than USD so it’s a really weak hedge.
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- #9
interesting we are guessing instead of checking the real text 
p.170, CFAI vol 6 says —
“CROSS-HEDGES ARE SOMETIMES USED FOR CLOSELY LINKED CURRENCIES. For example, a US investor could use euro futures to hedge the currency risk in Swiss sotcks, because the Swiss franc and the euro are highly correlated.”
So it seems like it is shorting euro futures (against USD), because CHF and EUR are highly correlated.
BUT —- is this NOT proxy hedge? CFAI says it’s cross, and so does Schweser (last paragraph, p.118, book 5). I simply don’t understand this.
More input to this appreciated.
- sticky
p.170, CFAI vol 6 says —
“CROSS-HEDGES ARE SOMETIMES USED FOR CLOSELY LINKED CURRENCIES. For example, a US investor could use euro futures to hedge the currency risk in Swiss sotcks, because the Swiss franc and the euro are highly correlated.”
So it seems like it is shorting euro futures (against USD), because CHF and EUR are highly correlated.
BUT —- is this NOT proxy hedge? CFAI says it’s cross, and so does Schweser (last paragraph, p.118, book 5). I simply don’t understand this.
More input to this appreciated.
- sticky
JoeyDVivre
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- Jun 18, 2026
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Schweser actually has the opposite as I described above. Kinda dumb really because nobody would ever really make that distinction. You hedge with what’s closest and cheapest.
hala_madrid
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- Jun 18, 2026
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sticky Wrote:
——————————————————-
> interesting we are guessing instead of checking
> the real text
>
> p.170, CFAI vol 6 says —
>
> “CROSS-HEDGES ARE SOMETIMES USED FOR CLOSELY
> LINKED CURRENCIES. For example, a US investor
> could use euro futures to hedge the currency risk
> in Swiss sotcks, because the Swiss franc and the
> euro are highly correlated.”
>
> So it seems like it is shorting euro futures
> (against USD), because CHF and EUR are highly
> correlated.
>
> BUT —- is this NOT proxy hedge? CFAI says it’s
> cross, and so does Schweser (last paragraph,
> p.118, book 5). I simply don’t understand this.
>
> More input to this appreciated.
>
> - sticky
You are right… but I think that you are not using the right LOS. The 3 kind of hedges are in fixed income, in the 3rd LOS (I think), just after the one hedging MBSs. And the wording is very close to the same Joey used above:
- using as pair of currencies your home currency and the bond´s currency (fwd hedge)
- using as pair of currencies your home currency and a third currency (proxy hedge)
- using as pair of currencies a third currency and the bond´s currency (cross hedge)
The problem with the wording in cfa book of currency management is that they only talk about “cross hedges” (actually they don´t even use the word “proxy”), so I assume they just “integrate” cross hedge and proxy hedge into “cross hedges”.
For fwd/proxy/cross questions, I would use the classification they use in fixed income, not the one in currency risk management.
——————————————————-
> interesting we are guessing instead of checking
> the real text
>
> p.170, CFAI vol 6 says —
>
> “CROSS-HEDGES ARE SOMETIMES USED FOR CLOSELY
> LINKED CURRENCIES. For example, a US investor
> could use euro futures to hedge the currency risk
> in Swiss sotcks, because the Swiss franc and the
> euro are highly correlated.”
>
> So it seems like it is shorting euro futures
> (against USD), because CHF and EUR are highly
> correlated.
>
> BUT —- is this NOT proxy hedge? CFAI says it’s
> cross, and so does Schweser (last paragraph,
> p.118, book 5). I simply don’t understand this.
>
> More input to this appreciated.
>
> - sticky
You are right… but I think that you are not using the right LOS. The 3 kind of hedges are in fixed income, in the 3rd LOS (I think), just after the one hedging MBSs. And the wording is very close to the same Joey used above:
- using as pair of currencies your home currency and the bond´s currency (fwd hedge)
- using as pair of currencies your home currency and a third currency (proxy hedge)
- using as pair of currencies a third currency and the bond´s currency (cross hedge)
The problem with the wording in cfa book of currency management is that they only talk about “cross hedges” (actually they don´t even use the word “proxy”), so I assume they just “integrate” cross hedge and proxy hedge into “cross hedges”.
For fwd/proxy/cross questions, I would use the classification they use in fixed income, not the one in currency risk management.
- Thread starter
- #12
hala_madrid Wrote:
> You are right… but I think that you are not
> using the right LOS. The 3 kind of hedges are in
> fixed income, in the 3rd LOS (I think), just after
> the one hedging MBSs.
Huh? I am referring to LOS 46.e, which is covered in p.170, CFAI 6, or last paragraph on p.118, Schweser book 5. You are correct there is this “hedging currency risk” section under fixed interest, on p.34, CFAI vol 4, but I am NOT referring to that.
> For fwd/proxy/cross questions, I would use the
> classification they use in fixed income, not the
> one in currency risk management.
So back to my original question, what kind of hedge is that?
- sticky
> You are right… but I think that you are not
> using the right LOS. The 3 kind of hedges are in
> fixed income, in the 3rd LOS (I think), just after
> the one hedging MBSs.
Huh? I am referring to LOS 46.e, which is covered in p.170, CFAI 6, or last paragraph on p.118, Schweser book 5. You are correct there is this “hedging currency risk” section under fixed interest, on p.34, CFAI vol 4, but I am NOT referring to that.
> For fwd/proxy/cross questions, I would use the
> classification they use in fixed income, not the
> one in currency risk management.
So back to my original question, what kind of hedge is that?
- sticky
hala_madrid
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- Jun 18, 2026
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proxy
hala_madrid
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- Jun 18, 2026
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According to those pages, it would be a cross hedge.
Also, really, I don´t want to bother you on this and insist and insist and insist… Just trying to help. But if you use those pages as reference, you will never use “proxy”, as it is not even mentioned. For this kind of questions I would use the other reference included in fixed income
hope it helps
Also, really, I don´t want to bother you on this and insist and insist and insist… Just trying to help. But if you use those pages as reference, you will never use “proxy”, as it is not even mentioned. For this kind of questions I would use the other reference included in fixed income
hope it helps
JoeyDVivre
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- Jun 18, 2026
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hala_madrid Wrote:
——————————————————-
>
> The problem with the wording in cfa book of
> currency management is that they only talk about
> “cross hedges” (actually they don´t even use the
> word “proxy”), so I assume they just “integrate”
> cross hedge and proxy hedge into “cross hedges”.
>
Right - that’s the way that normal people do things (unlike CFAI). If I’m taking on basis risk it’s a cross hedge or a proxy hedge and use the terms interchangeably. If you are looking at returns in USD the cross hedge above is not even very useful because almost all currencies are at least as liquid vs USD as anything else. We used to trade Drachma vs Deutschemark because you couldn’t trade Drachma vs USD but those currencies don’t even exist anymore.
——————————————————-
>
> The problem with the wording in cfa book of
> currency management is that they only talk about
> “cross hedges” (actually they don´t even use the
> word “proxy”), so I assume they just “integrate”
> cross hedge and proxy hedge into “cross hedges”.
>
Right - that’s the way that normal people do things (unlike CFAI). If I’m taking on basis risk it’s a cross hedge or a proxy hedge and use the terms interchangeably. If you are looking at returns in USD the cross hedge above is not even very useful because almost all currencies are at least as liquid vs USD as anything else. We used to trade Drachma vs Deutschemark because you couldn’t trade Drachma vs USD but those currencies don’t even exist anymore.