common in single country portfolios as well. Even if the price of a fixed income security is unchanged over the investment period, the investor can achieve much higher or lower returns if the currency that the security was denominated in appreciates or depreciates relative to the base currency. Due to the volatile nature of exchange rates relative to most other fixed income risks, if an investment is exposed to currency risk, the return will be impacted more by the change in the exchange rate than by any other factor. Currency risk can be mitigated or effectively eliminated using currency hedging techniques. The most widely used technique is to hedge using currency forward contracts where the investor will sell the currency of the nonbase-currency investment forward and simultaneously purchase the investor's base currency. This will offset any loss if the currency invested in depreciates relative to the base currency, since the investor has already effectively exchanged the currency at the exchange rate at the time of purchase of the security. The measure that is most appropriate to quantify currency risk is simply the percent of the portfolio's market value (net of any currency hedges) that is exposed to each currency. Security-Specific Risk While the list of fixed income risks described so far is not exhaustive, these risks explain much of the volatility of returns of most fixed income securities. Security-specific risk can be thought of as the volatility of a bond's return that cannot be explained by the other fixed income risk factors. Security-specific risk generally arises due to changes in the supply and demand balance of that security or due to changes in the market's perception of the credit quality of the issuer of the security. Several recent examples of market prices changing due to security-specific issuers are: II Enron and WorldCom bond prices dropped dramatically more than prices of bonds with comparable credit ratings, as the market believed that there was a high probability of a debt default from the issuers. II The price of Brazilian external sovereign debt declined significantly, as the market was concerned about the outcome of an upcoming presidential election and the fiscal policies of the victor. II Collateralized mortgage obligations (CMOs) are structured mortgage-backed securities. The price of floating rate CMOs backed by Ginnie Mae (GNMA) mortgage pools increased because there was a large demand for this particular structure by European financial institutions. II A number of securities have significantly outperformed the rest of the market because of short squeezes. Short sellers must borrow securities from long holders of the bonds. If there is too much demand to borrow an issue, the short sellers must bid up the price in order to avoid failing on the transaction. It is important to note that unlike in the equity market, security-specific risk in the fixed income market is negatively skewed. In other words, the downside risk in bonds is generally much greater than the upside potential. With the exception of