Inter-market carry trade
1) I cant seem wrap my head around this currency neutral inter-market carry trade concept. One of the strategies is “long position in 10-year bund futures and a short position in 10-year Treasury futures.” How does this strategy avoid currency risk when you long in EUR and short in USD?
2) Another unrelated question, carry trade method - to borrow in a lower interest rate and invest in a higher interest rate currency. “The currency risk in such carry trades cannot be hedged because interest rate parity dictates that the currency with the higher yield will trade at a forward discount to the lower yield currency. If the currency were hedged, it would offset the short-term interest rate differential in the two countries.” I don’t understand why it cant be hedged?
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