Currency overlay

Outsourcing of currency risk management to a specialist company. This is done in international investment portfolios to seperate the management of currency risk from the asset alloaction and security selection decisions of the money managers of the investor.
Such assignments can be active or passive. Passive currency overlay versus an unhedged benchmark implies neutralising (surprsing) currency effects implicit in the active country position while (fully) hedgedpassive overlay means eliminating (all) currency surprises. Active currency overlay strategies seek to participate in upside currency gain while protecting against downside currency losses.