Hey guys, I found it hard to understand the explanation of Q34, can someone shed light on it?
Which of the following statement is most likely to be correct?
Jones makes the following statements regarding inter-market trades:
Statement 4: Given the lack of credibly fixed exchange rates across markets,
default-free yield differentials are unlikely to perfectly converge over time.
Statement 5: Given today’s domestic rate environment, even if there is volatility in spread
levels or rates, the most important driver of the expected returns for US investors entering into an inter-market trade will be the carry advantage.
Statement 6: For clients who do not want to accept currency exposure, we can eliminate that risk by rolling 3-month forwards until we unwind the trade.