Auto hedging secondary FX exposure

With Jonathan Cooper at TradingScreen

What is secondary FX exposure and how is it typically generated? Secondary FX exposure is an open position created by trading in other primary asset classes. This activity results in spot and forward positions that buy-side clients need to hedge. Take for example a European Midcap fund with a base currency in sterling that is generating secondary FX positions each time the fund manager selects or deselects companies from their fund. Alternatively a macro hedge trading index futures, cash bonds and FX as an asset class is also generating these secondary positions that need to be hedged. What types of client are looking to hedge this type of exposure?   Financial markets are not autonomous and cross boarders deals are becoming increasingly complex. Any entity that is making investments or undertaking a transaction in an asset class outside of their home currency will have an interest in this process. Historically the client’s prime broker would have taken care of this process...continued

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