The Currency Investing Process: Managing G10 Currencies

Ulf J. Lindahl

The G10 currencies are the most actively traded currencies in the foreign exchange market, and are generally included in most currency investment portfolios in one way or another unless a currency strategy is dedicated to investing exclusively in EM or exotic currencies. The deep liquidity in the G10 currencies has permitted several specific investment styles to be developed that take advantage of features in the currency market that have proved to persist over long periods of time. This chapter will define the G10 currencies, and provide measures of their liquidity and correlation with each other. It will also describe common strategies that currency managers employ, how risk is managed and also look at performance measurements.

MARKET LIQUIDITY

The G10 currencies are the US dollar (USD), the euro (EUR), the Japanese yen (JPY), the UK pound sterling (GBP), the Swiss franc (CHF), the Norwegian krone (NOK), the Swedish krona (SEK), the Canadian dollar (CAD), the Australian dollar (AUD) and the New Zealand dollar (NZD). An investor who operates with one of the G10 currencies as their base currency and measures investment returns against it has a universe of nine currencies that can

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