Cancelling out the effect of exchange rate moves
Hedging removes the gain or loss that comes from exchange rate movement on a foreign asset. You give up the benefit when your currency weakens in exchange for protection when it strengthens. Hedging costs money, and the cost rises with the gap between the two countries' short-term interest rates. Funds are often sold in hedged and unhedged versions side by side.
With a 4% gap in short-term rates between the two countries, hedging costs roughly 4% a year.
For learning, not investment advice. Decisions are your own.
StockFit · TrueNorthLabs Inc.