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Short Takes: Credit Card Balance Insurance and more

1. Preet has yet another reason why credit card balance insurance is a bad idea.

2. Rob Carrick asks whose interest does your financial advisor have at heart?

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Comments

  1. Big Cajun ManMay 7, 2010 at 7:36 AM

    As a shareholder in BMO I hope they recover some of this lost money! Thanks for the mention, have a pleasant weekend.

    ReplyDelete
  2. WhereDoesAllMyMoneyGo.comMay 7, 2010 at 9:27 AM

    Thanks for the link Michael - I think balance protection insurance is big business for the lenders...

    Have a great weekend.

    ReplyDelete
  3. Michael JamesMay 7, 2010 at 12:27 PM

    @CC: Something I was wondering about is whether stock prices tend to adjust for currency swings. If the Canadian dollar drops suddenly, will the price of a large Canadian company that operates multinationally go up (in Canadian dollars) as a result to compensate for the fact that some of its revenues are in other currencies? If so, it isn't correct to just add stock volatility to currency volatility to get overall volatility of unhedged portfolios.

    ReplyDelete
    Replies
    1. Michael JamesOctober 31, 2020 at 8:36 PM

      The comment above is a reply to Canadian Capitalist's comment below. His subsequent reply is further below.

      -----

      Thanks for the mention Michael. I'll have to think through the analysis but I'm sure of one thing: the delta between S&P 500 and S&P 500 CAD Hedged returns leads me to conclude that currency hedging has significant costs.

      -----

      @Michael: I'm writing about this on Monday. AB's two assumptions are flawed:

      1. The risk of unhedged dollar returns is less than the sum of risk of local market returns and currency risks. Often risks of unhedged portfolio returns was less than risk of local market returns due to negative correlation with exchange rate changes.

      2. A minor point. SD of C$ against the USD was 4.6 over the 1900-2000 period and 4.2 over the 1950-2000 period.

      Data from Triumph of the Optimists. Post on this on Monday.

      Have a great weekend.

      Delete

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