Hedged return computation issue
Here is the problem to solve: we hold a portfolio of European stocks, currently worth EUR 300.000. The spot exchange rate is 1.10 USD/EUR.
We hedge the currency risk with a 3-month futures contract on the EUR at 1,15 USD/EUR.
A week later the portfolio is worth EUR 320.000, the spot exchange rate is 1,20 USD/EUR and the futures exchange rate is USD 1,23 USD/EUR.
How would you compute the RFX (currency return) & RFC (asset return, this one is easy) & total return?
My reflex was to take into account only the two spots price & the initial future contract into account. However, it seems that the 1,23 USD/EUR futures one week later matters.
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