CFAI Reading 19 Question 23

I am not really understanding this question. It sounds like the Swedish fund had some EUR exposure and decided to hedge this exposure by selling EUR forward contracts. Based on the data in the question, the monetary tightening by the Swedish bank has swung the forward points of the SEK/EUR rate to a premium (i.e FP>St, so the curve is now in contango). The question asks “Given the recent movement in the forward premium for the SEK/EUR rate, Bjork can expect that the hedge will experience higher:” the answer was B Roll Yield. How can this work? the question stated that their EUR exposure was already hedged by going short EUR forwards. How can a hedge that has already been implemented experience higher roll yield by having the curve switch from backwardation to contango? My thought process was that they hedged their EUR exposure by going short a forward and locking in a certain rate (eg. 1.2 SEK/EUR). The decision by the bank has put the SEK/EUR rate into forward premium (eg. 1.3 SEK/EUR), so the value of their forward contracts has fallen because they could have locked in a higher rate had they waited.

Same question I also have