The Rise of Currency Hedging Increases Financial System Risks
Over the past year, the US dollar has experienced a significant appreciation of around 20%. Experts generally attribute this phenomenon to rising interest rates and investors seeking "safe haven assets" during periods of market turbulence.
The rise in the US dollar's value has led to an increased interest in currency hedging among market participants. Currency hedging is a strategy used by investors and businesses to mitigate the potential risks associated with fluctuations in exchange rates. It involves taking positions or using financial instruments that offset or reduce the impact of currency movements on investment returns.
While currency hedging can provide a certain level of protection against adverse currency movements, it also introduces additional risks and complexities to t...