Sample interview questions: How do you assess and manage currency risk in asset management?
Sample answer:
Assessing Currency Risk
- Identify Currency Exposure: Determine the currencies in which assets and liabilities are denominated and the potential impact of exchange rate fluctuations.
- Quantify Risk: Use statistical models (e.g., historical volatility, correlation analysis) or sensitivity analysis to estimate the potential impact on portfolio returns.
- Consider Market Factors: Analyze factors such as economic growth, interest rates, and political stability that can influence currency movements.
- Integrate with Investment Strategy: Assess currency risk in the context of the overall investment strategy and risk tolerance.
Managing Currency Risk
- Hedging: Use financial instruments (e.g., forwards, options) to offset potential losses from adverse exchange rate movements.
- Diversification: Invest in assets denominated in different currencies to reduce overall currency exposure.
- Active Currency Management: Adjust currency allocations based on … Read full answer