Hedged & UnHedged Returns - Quick Test

CFA Level III Fixed Income
#1

So I’m a US investor who has UK bonds (for 1 and 2), and equities (for 3)

  1. Unhedged, I’ll earn the UK domestic return for the bonds+ currency return. 2) Hedged, I’ll earn the UK bond spread (UK bonds - UK rfr) plus the US rfr. This is also equal to the UK domestic bond return +/- forward premium/discount. 3) If I have UK equities and I’ve both sold a UK equity futures contract and currency hedged, then I’ll earn the foreign (UK) rfr.

Am I right?

#2

hedged = lock in an exchange rate, eliminate currency risk exposure…

#3

Got the theory dude! Need to apply to 1,2, & 3…

#4
  1. hedge both earn US RFR
#5

itsmclovin are you sure? The text’s a little confusing on this…

#6

yes and i agree

#7

Brilliant…thanks and good luck…

#8

agree

#9
  1. When you have UK equities and sell UK equity futures, but leave currency unhedged you will earn UK risk free rate + currency return.