Hi guys,If a currency such as AED is pegged to the USD, how can you best hedge that?If you have a balance of 12,000 USDAED, what's the correct hedge calculation? How do I hedge that with just USD?

you are kidding right ?Have you considered deliverable or non-deliverable forward contracts ?As to your question on whether you can hedge with just USD then please think carefully about this and let us know what you come up with it.

I had to google aed to find out what it was.... UAE dirhamQuoteSince November 1997, the dirham has been pegged to the 1 U.S. dollar = 3.6725 dirhams,[3] which translates to approximately 1 dirham = 0.272294 dollar.

The only risk is that the currency stops to be pegged, which increases with the maturity of the contract.

it is very difficult to hedgethe peg can hold for a long time, until some day it doesn'tthe reason it breaks are not so easy to foresee (although they will seem obvious in retrospect, in the pages of The Economist magazine)for a non-pegged oil producer, the currency appreciates with the oil price I believe. By analogy, I might guess a sufficiently sharp fall in the oil price might break the peg. So short oil ?Shorting stocks and currencies of similarly situated countries that don't peg (oil producers, arab non-oil countries) might provide some protection in case of political or economic shocks.But I would not call it a real hedge...

Quote it is very difficult to hedge there is usually a NDF market.