Calculating total return on bond and CCY movement

CFA Level III Fixed Income
#1

Hi, got this question on schweser practice exam vol1 (2016) exam 2 PM Q41.

UK Manager bought CNY bond and hedged principal of £ 5M. At that time rate was 0.78 gbp/cny and futures rate 0.79 gbp/cny

when he sells his position value of investment went up to 5.1M gbp and futures rate is 0.785 while spot is 0.75

what im doing is 5m /0.78 = 6.410M To find initial investment

then 5m that we hedged we have to exchange under 0.79 (am i wrong here?) 5/0.79=6.329M

0.1 (100K unhedged) / 0.75 =0,133M

total return is (0.133+6.329)/6.410= 0.8%

but this answer is wrong, could you please help explaining this . Thanks

#2

The unhedged amount is irrelevant. The easiest thing to do is think of the positions completely separately.

Calculate the return of the investment first in domestic currency , then calculate the loss/gain on the hedge in domestic currency.

Remember you are short GBP in futures.