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Currency risk and international property investments

Currency risk and international property investments Incorporating exchange rate fluctuations into the analysis of an international investment substantially alters the expected risk and return characteristics of the investments. With fluctuating rates, the value of a successful investment property could be devastated when converted to the investor′s home currency. This risk should be recognized and incorporated into the investment decision but, as results show, the ultimate strategy may not be periodic adjustments which have been used by many researchers, nor trying to hedge fully as others have suggested, but rather to examine returns in home market currency and leave exchange rate exposure decisions to the currency portfolio managers. Explores the possibilities of mitigating currency risk through several hedging instruments – forward and futures contracts, options, back‐to‐back loans and currency swaps. Results from a survey of international investors are also summarized and comments provide substantial evidence that investors are unsophisticated in dealing with currency questions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Property Valuation and Investment Emerald Publishing

Currency risk and international property investments

Journal of Property Valuation and Investment , Volume 13 (5): 16 – Dec 1, 1995

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Publisher
Emerald Publishing
Copyright
Copyright © 1995 MCB UP Ltd. All rights reserved.
ISSN
0960-2712
DOI
10.1108/14635789510147810
Publisher site
See Article on Publisher Site

Abstract

Incorporating exchange rate fluctuations into the analysis of an international investment substantially alters the expected risk and return characteristics of the investments. With fluctuating rates, the value of a successful investment property could be devastated when converted to the investor′s home currency. This risk should be recognized and incorporated into the investment decision but, as results show, the ultimate strategy may not be periodic adjustments which have been used by many researchers, nor trying to hedge fully as others have suggested, but rather to examine returns in home market currency and leave exchange rate exposure decisions to the currency portfolio managers. Explores the possibilities of mitigating currency risk through several hedging instruments – forward and futures contracts, options, back‐to‐back loans and currency swaps. Results from a survey of international investors are also summarized and comments provide substantial evidence that investors are unsophisticated in dealing with currency questions.

Journal

Journal of Property Valuation and InvestmentEmerald Publishing

Published: Dec 1, 1995

Keywords: Currency options; Exchange rates; Hedging; International accounting; Investment property portfolio; United Kingdom; USA

References