Topic Test - Asset Allocation SGGI Q3 two issues!!

CFA Level III Portfolio Management
#1

Question 3 regarding hedging of CAD position with respect to NA fund, the answer given about roll yield doesnt make sense!

for the MXN/CAD spot and forward rates given -

current 6-month forward rate < current 6-month spot rate --> which shows its in Backwardation , implying that its roll yield is positive (as per curriculum). And the explanation for it is (by curriculum) -

Explanation: Roll yield = Change in Futures Price - Change in Spot Price [(Ft - F0) - (St - S0)], however since at maturity Ft = St, roll yield then becomes = (S0 - F0) [therefore, if F0 < S0 => roll yield is positive]

BUT the two issues I have is,

  1. the answer says - The fund will incur a 4.57% cost, the negative roll yield (whereas its actually positive as per above!)

  2. Why have they calculated the roll yield as F/S - 1? (shouldnt it be S0 - F0 as explained above?)

Sorry, I know it maybe a very basic question - but I just cant get my head around this! :frowning:

#2

This is incorrect.

Roll yield = Forward price / Spot price - 1

So, roll yield in SGGI case is negative

#3

Oh Blimey! Thats right - dont know how I got the wrong thing in my head. Thank you!