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AFMPegged currencies

BBrianH11y ago
Sir What does it mean when a question states that one currency is pegged to another? Plus how does this affect the fx hedging strategy? Thanks a lot :) Sorry for putting this topic on the general p4 forum as well, didn't mean to!
John MoffatJohn MoffatTutor11y ago#1
But this is the general P4 forum :-) If one currency is pegged to another, it means that the exchange rate is fixed. So suppose, for example, the Peso is pegged against the US dollar and we are in Euro land and going to receive Pesos. It may be there are no forward rates, futures or anything for Pesos. However, since it is fixed against the dollar, we could use US forward rates. futures etc. to hedge the risk. (The one remaining risk is that there is always the possibility of the Peso country stopping the pegging - then the Peso could do anything and we would have a problem :-) )
BBrianH11y ago#2
Thanks So we could effectively convert the peso to us $ at fixed spot, and then hedge the combined us $ total?
John MoffatJohn MoffatTutor11y ago#3
Correct :-)
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