Schweser Book 4 Page 136 Self Test question 2 136, 300, principal, something, question

fishmarket

Ok, what am I doing wrong. Shouldn’t the unhedged dollar return and the hedge return come back relatively close to the return in local
I’m seeing a
local return of 6.7 (320,000-300,000/300,000)
US Return of 16.4 (384,000-330,000/330,000)
Return on contract -7.3 -(1.23-1.15*300,000/330,000)
Hedged return of 16.4 - 7.3 = 9.1 (C)
Why doesn’t it come back to 6.7 (or very close) considering the principal’s been hedged?
Sorry if I missed something stupid. I’ve been looking at this for 45 minutes. I can’t waste anymore time on one problem.
Thanks in advance.

Iginla2011

Probably because the 6.7% local return doesn’t take into account the currency changes? Local return is just the change in the values. Its when you want to look at it from a domestic viewpoint, you take the currency changes.

jcfa2011

I guess the reason is the euro appreciated so much.
look at unhedged return, it is 16.4% much higher than the 9.1%

ishfaque

Yeah, must be. It was a big move. I was concerned as the other examples the hedge at least got you pretty close so it was a good check to make sure you didn’t screw up a calc.