Clarification on Roll Yield

CFA Level III
#1

Can someone confirm if my understanding of Roll Yield is correct.

Roll Yields are a result from trying to hedge your currency exposures. It’s basically the contracted price you agreed to buy/sell something for in the future vs what that item’s actual price will be in the future (future spot price).

The terms Premium (F > S) / Discount (F < S) are the same from the perspective of the long and short positions.

However the positive / negative roll yield varies on which perspective you are viewing from (either long vs short positions).

Also, the schweser definition states Roll Yield … is the movement of Forward towards Spot price… Why not Spot towards Forward price? is it just a point of reference or is there something else to it?

thanks,

#2

You should be aware of two facts:

  1. The market doesn’t know the forward price for your contract
  2. If the market did know the forward price for your contract, it would have the good sense not to care