[Verse 1] Sarah buys Japanese bonds from Tokyo's floor Yen and dollar dancing, currencies at war Ten percent return looks sweet upon her screen But exchange rates shifting, nothing's what it seems When the yen drops twenty percent against her home Profits turn to losses, portfolio's alone [Chorus] Foreign bonds bring double trouble, currency and credit Interest rates and exchange rates, both affect your credit Hedge the currency, keep the yield Forward contracts are your shield F-O-R-E-X risk can steal your gains away Hedge today, hedge today [Verse 2] Forward contracts lock tomorrow's exchange rate Sign today for delivery at future date If you buy German bonds worth million euros clean Forward sale protects you from the FX scene Premium paid upfront but volatility tamed Currency-neutral returns can now be claimed [Chorus] Foreign bonds bring double trouble, currency and credit Interest rates and exchange rates, both affect your credit Hedge the currency, keep the yield Forward contracts are your shield F-O-R-E-X risk can steal your gains away Hedge today, hedge today [Bridge] Unhedged exposure amplifies your swings Hedged positions clip volatility's wings Duration stays the same but variance drops Currency overlay makes the chaos stop [Verse 3] Portfolio manager weighs the hedging cost Basis points of premium, is efficiency lost? Developed markets cheaper, emerging costs more Transaction expenses knocking at the door Partial hedge or full hedge, strategic choice to make Balance risk and return for the portfolio's sake [Chorus] Foreign bonds bring double trouble, currency and credit Interest rates and exchange rates, both affect your credit Hedge the currency, keep the yield Forward contracts are your shield F-O-R-E-X risk can steal your gains away Hedge today, hedge today [Outro] International bonds expand your universe wide But currency hedging keeps you safe inside Master both dimensions of this complex game Foreign fixed income will never be the same
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