International stocks: hedging against currency changes

Discussion in 'Forex' started by metz419, Jan 13, 2006.

  1. metz419


    Ok, I know very little about currency, so please forgive me if this doesn't make sense.

    Let's say I want to buy a stock in company XYZ in Japan I think will rise significantly, but I don't want to be exposed to the currency risk between the USD/JAP...I just want to bet on the Stock rising in its own currency...would this work?

    *Buy $100 (which would need to be converted into yen) worth of Japanese stock XYZ

    *Use one dollar with 100:1 leverage and short JPY/USD

    *Eventually sell the stock (let's assume it has raised in value 20% (in terms of yen))

    *Convert the yen from the stock sell off to USD and exit out of the JPY/USD trade

    Would the return on the stock now be 20% minus the pip spread cost and opportunity cost of the one dollar used for leverage in the JPY/USD short reguardless of how much the Yen gained/lost on the dollar?

    If this is not the case, is there anyway to hedge against international stock picks?

    Thanks in advance for any help!
  2. metz419


    Nevermind.....just realized that would never work.....if the stock cut in half, you'd be net long the dollar by quite a bit
  3. Cceck on BONY site to see if it has an ADR
  4. metz419


    Just did some quick research on ADR's....they don't hedge against currency risk.
  5. Yes you are right. Didn't think that through. More coffee needed. Benefit is that funds that can't invest in overseas stocks can gain exposure to overseas stocks via what is legaly a US instruments.