Currency Risk Management, Post-Brexit

Sometimes I still find myself chuckling at the irony of the timing of the Risk Management module, as the Brexit vote took place during this period, and there are so many real life applications of risk management theory that can be pointed out as cautionary tales.

As an American, I have long marveled at the strength of British currency. The sterling pound has always been worth more than a US dollar, and, I’ll admit, that until I began studying finance, I had no idea why. However, in the aftermath of Brexit and the ensuing financial market fiasco, the sterling pound has plummeted – a scenario I have to believe the politicians pushing for Brexit hadn’t fully imagined. I think that the current situation more or less necessitates that investors and investment managers consider managing currency risk a critical component of any viable asset management strategy.

To explain, Americans working in London without a hedge lost almost 12% in the first two days post-Brexit solely due to currency fluctuations. Japanese expatriates lost almost 15% in currency devaluation over the same span. I have a friend working in London who was so panicked by the rapid pound devaluation that their only recourse was to hedge by buying gold.

At this point, with all of the geo-political junk going on everywhere, some are predicting a global economic collapse within the next calendar year. If that’s the case, is a zombie apocalypse next?

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Ismail

About Ismail

Hi, I'm Ismail. I'm an American living abroad while trying to figure out what I want to be when (if) I grow up. I love sports, particularly American football and martial arts, and when I'm not working at one of my four jobs, you will likely find me in the gym lifting really heavy stuff. I'm a distance learning MSc Finance student, and I'll be happy to share my journey with you while trying to maintain some semblance of sanity.

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