Explain the role of minimum-variance hedge ratios, macro-hedges and cross-hedges for portfolios exposed to several foreign currencies

A cross-hedge uses a different but correlated currency or asset when hedging the actual exposure is costly or impossible, accepting basis risk because the two do not move together exactly. A macro-hedge protects the whole portfolio against a broad risk, such as a currency basket or a general risk-off move, rather than hedging each exposure separately, cutting cost and complexity. The minimum-variance hedge ratio is the slope from regressing the foreign asset's domestic-currency return on the currency's return, equal to ρ × σ(RDC) ÷ σ(RFX). It captures translation risk and any economic link between local returns and the exchange rate, so it need not equal one. The trap is trusting it blindly: correlations shift, so estimates are unstable.