With the US dollar currently trading at a forward premium and US interest rates lower than Spanish rates, Delgado recommends trading against the forward rate bias to earn additional return from a positive roll yield. Identify two strategies Delgado should use to earn a positive roll yield. Describe the specific steps needed to execute each strategy.
"Delgado recommends trading against the forward rate bias to earn additional return from a positive roll yield. " - why is delgado recommending this? shouldn’t he be recommending to trade the forward rate bias? Why is this sentence here? I am so confused.
One of my answers to get a positive roll yield was to sell the higher priced forward and close it out at the lower price. I assumed this would be correct b/c the forwards should be in a contango situation since there is a forward premium for usd. Why is this not listed as one of the answer choices? Is my answer wrong?
wow! This is what you wrote down. As clear as possible. Delgado recommends trading against the forward rate bias because interest rates in the US are lower than in Spain and the dollar is trading at a forward premium.