This refers to purchasing shares of a prominent e-commerce and cloud computing company, whose primary listing is in USD, while mitigating currency risk through hedging strategies involving the Canadian Dollar. For instance, an investor residing in Canada could acquire shares of the aforementioned company and simultaneously employ financial instruments to offset potential losses arising from fluctuations in the USD/CAD exchange rate.
Currency hedging can be important because it aims to provide more predictable returns for Canadian investors. The relative strength or weakness of the Canadian dollar compared to the US dollar directly impacts the value of US-denominated assets when converted back to Canadian currency. Hedging is a strategy to reduce or eliminate this variability, potentially stabilizing investment returns. This approach has evolved as global investment strategies have grown increasingly complex, demanding tools for effective risk management related to foreign exchange.
