Duke - Alternative investments - Roll Return

CFA Level III Portfolio Management
#1

If anybody has done this question, any help is much appreciated.

There’s two options for question 3 that seem possible and I dont know how to distinguish which one would have a higher roll return (Australian dollars vs wheat futures). In the answer it says the Backwardization for the wheat futures is > the roll return for australian dollars but I dont know why.

I got the right answer by thinking that the Australian dollars being SHORT and showing future prices decreasing is actually in Contango not backwardization. The wheat futures are decreasing and the position is LONG so I chose this as backwardization.

If anybody can explain Topic Test Duke and question 3, much appreciated.

#2

you can eliminate oil immediately as it is in contango and has a negative roll return,

cacluate the roll return on australian dollars - he’s selling them short

105.42-101.34/101.34 =-4% return on the roll.

assuming prices rise 5% you also lose on that end.

wheat futures are the only option.

odd that the worded the question and answer in this way like at least one portion of the currency trade would be positive.

#3

Long position in Backwardation = Positive Roll Yield

Long Position in Contango = Negative Roll yield

Short in Backwardation = Negative RY

Short in Contango = Positive RY

#4

Thanks guys…Much appreciated.