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Multi-Asset Investing: A practical guide to modern portfolio management by Yoram Lustig

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26. Currency

Currency exposure is an integral part of global investments. Each investor and portfolio has a base currency. The base currency of a US based investor is the dollar (USD), that of a UK based investor is the pound (GBP) and for a euro zone investor it is the euro (EUR). Returns of foreign currency denominated investments should be converted to the portfolio’s base currency.

Movements in currency can have a large impact on performance of foreign or overseas investments – currency movements can overwhelm the performance of portfolios more than investment selection. Many investors pay considerable attention to investment selection and neglect paying attention to currency risk management. For example, a US investor invests in UK equities, ...

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