Valuutafond

Valuutafond is a financial vehicle designed to invest in or hold foreign currencies as an asset class. In practice, a valutafond may directly hold foreign currencies, invest in assets denominated in multiple currencies, or employ currency derivatives to manage exchange-rate risk. It is used by asset managers, pension funds, corporations, and sometimes sovereign entities to diversify currency risk or pursue returns from currency movements.

There are two main approaches: hedged and unhedged. Currency-hedged funds aim to reduce exposure to exchange-rate movements relative to a base currency, using forwards, futures, swaps, or options to lock in rates. Unhedged funds maintain a multi-currency portfolio to capture potential appreciation or depreciation of held currencies.

Management and strategy: Valuutafonds can be actively managed or passively managed. Strategies may include allocation across major and minor currencies, carry trades, or diversified exposures. Instruments include forwards, futures, options, and spot FX, as well as fixed-income or other assets denominated in currencies.

Valuation and risks: Valuations are typically reported in the base currency of the fund. Principal risks include currency risk, interest-rate differentials, liquidity, model risk with derivatives, and counterparty risk. Costs include management fees, trading costs, and spreads.

Regulation and use: In many jurisdictions, valutafonds are regulated as investment funds under securities laws and must publish prospectuses and disclosures. They are commonly used to hedge international cash flows, diversify currency exposure in a portfolio, or express views on currency movements.