For short term investors, exchange rates make a huge difference, but over the long-term hedging makes little sense, says new research. Perhaps long-term investors such as pension funds are worrying too much about currency risk.

There is little doubting the importance of currency markets in terms of overall trade: the foreign exchange market turns over $3.98 trillion a day, as firms hedge currency risk, import and export goods, and hot money flows to higher interest rates, according to the Bank for International Settlements. That compares with trades of just $300bn a day on the US equity market, the world's largest, according to Nomura.