Seven Arrows Management

Currency

Program Description: Decisions are taken on the basis of a mathematical model that combines a number of fundamental and technical factors. These factors have shown their worth in other studies based on other time periods and a large number of currencies. The factors enter in the model sometimes in a piece-wise linear fashion, sometimes in a non-linear fashion, and sometimes in a discontinuous fashion. The total model is estimated using a formula whose constraints limit the position, either long or short, in any one currency including the United States which is considered the base currency. For example, when the dollar is forecast to be weak, rather than taking long positions in all of the other currencies, the model takes long positions in the currencies that are expected to do best versus the dollar and short positions in currencies that are expected to do the worst, but the long positions will be larger than the short positions such that the net long position against is approximately the size of the long and short positions in the other currencies. This is a risk limiting mechanism, for if one took long positions in all the currencies versus the dollar, unexpected economic or political developments in the United States would have simultaneous effects on all outstanding positions. By constraining positions in the way the model does, risk is limited. The same constraint is in place no matter which currency is considered the base currency. This allows for somewhat higher gearing and overall better and smoother returns.