Adding Science to the Art of Active Management

Most investors understand that equities and bonds have a fundamental value – an anchor or a centre of gravity to which price should typically converge over the intermediate- to long-term. Prices will often fluctuate on either side of that fundamental value based on various influences, but they always have a tendency to revert to it. However, many investors remain skeptical that currencies have a fundamental value.

I beg to differ. The real exchange rate – the amount of goods one can buy with one currency versus another – ultimately gravitates to a fundamental value as well.

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