Hey guys, not sure if this has been asked before, but for Schweser Volume 1, Exam 3 AM session, the last qn 9D, we are asked to determine whether Bond X or Y will produce the higher return for the coming 6 months. In the solution, it seems to take into account the effects of appreciation/depreciation of currencies. This confuses me, cos I always thought breakeven yield is calculated independent of the forward premium or discount. Can anyone enlighten why in this case we need to consider the foward premium/discount? P.S. The reason why I am confused is becos I am comparing this question with the CFAI EOC qn 22 from Reading 30 whereby the breakeven spread analysis is calculated WITHOUT taking into account any forward premium/discount.
I think shouldn’t consider currency , if consider currency,why not consider price move? In the book they also don’t consider currency in breakeven .
I thought so too, which was why I was further confused by Schweser’s solution. I’ll take it that their solution is incorrect then.
I don’t think it’s incorrect…but i do think Schweser is just adding another layer of complication onto the break even analysis. If you see interest rates on the exam perhaps think about currency appreciation/depreciation as a factor too?
in the EOC they also have currency movement but the answer does not consider it , so should follow the book
Really? man schweser sucks!
Thanks man. Ok, in the CFAI exam, no currency movement for break even yield