DEFINITION of 'Currency Overlay'

The outsourcing of currency risk management to a specialist firm, known as the overlay manager. This is used in international investment portfolios to separate the management of currency risk from the asset allocation and security selection decisions of the investor's money managers.

BREAKING DOWN 'Currency Overlay'

The overlay manager's hedging is "overlaid" on the portfolios created by the other money managers, whose activities continue unaffected.

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