Last year's wild swings in the foreign exchange markets appear to be prompting a strategic rethink of the role of currency as an asset class.
Although currency is now widely accepted as a legitimate asset class, it suffers from being a zero sum game, ie it has a market beta of zero, meaning there is no reason to believe investors as a whole should make money.
Industry proponents get around this by arguing that the infamous carry trade – the practise of borrowing in low-yielding currencies and buying higher-yielding ones – benefits from a risk premium akin to that of equity markets, and therefore can deliver long-term positive returns.
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