Reading 28, P253
Exhibit 7: why is base currency trading at a forward premium? I can see that roll yield will be negative in this case.
Isn’t true that Fp/b will be lower than spot rate, which implies a forward discount?
Totally confused.
This Reading is new . It was not there last June in Lvl 3
The errata has a section on reading 28 , although it doesn’t address Exhibit 7 ( don’t know what that is)
http://www.cfainstitute.org/Eratta/2014_level_III_errata.pdf
"In Solution to 2 (p. 258), edit the first line as follows: “A is correct. When buying the base currency forward to implement the currency hedge, the implied roll yield cost (unannualized) of the hedge is: …” In the first paragraph under the formula: “This would indicate a negative roll cost or a positive roll yield …”