Author Topic: What currencies to hold Investment debt?  (Read 855 times)


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What currencies to hold Investment debt?
« on: October 19, 2019, 12:01:38 AM »
recently I've seen several big corporations borrow in euros at low rates . It's true that they probably hedge the positions which leads me to ask how much they paid for those hedges relative to the savings. In either case if you are an individual and don't want to hedge , what mix of currencies (or one?) would You hold medium to long term investment debt in? Is it too risky to hold it in one currency? Should you aim for the lowest rate or the one that has the least risk of currency strengthening? It seems some currencies are traps. If you hold debt in euron at say 1 to 1.5 Percent Interest You have to think ahead there may be large currency loss for the seemingly current low rate. Is diversification the best strategy similar to what IB does With the basket of currencies called the GLOBAL?


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Re: What currencies to hold Investment debt?
« Reply #1 on: October 19, 2019, 06:55:36 AM »
Medium/long term exposure is typically ALM at the currency level, using debt. Short-term FX change is considered part of everyday business.
Hence, when a treasurer is taking a position, he/she is adding tactical exposure in anticipation of a coming event.

It is highly likely that Brexit will temporarily disrupt UK/EU trade, as well as produce FX discontinuities in Sterling and Euro.
If this is a significant part of the business, it behooves one to purchase a little insurance.

It also implies that 'temporary' Brexit related capital controls are anticipated.
The preference ahead of an anticipated devaluation is to max out the credit lines on the devaluing side, and temporarily transfer the capital to the 'hard' side. Post devaluation, the capital is returned (net of the FX gain), to repay the debt. However, one needs to do it 'early', ahead of any kind of 'temporary' capital control.

These will all be bonusable positions,
and treasurers are not dumb  ;)