This might be a ridiculous question esp. so close to the exam but… When a question asks what the return on a hedged porfolio is? Do they mean both the market is hedged and the currency is hedged?
I think only currency is hedged.
fsa-sucker Wrote: ------------------------------------------------------- > I think only currency is hedged. wrong, acc to cfai it is very rare to hedge the currency risk without hedging the market risk. hedge the market risk only - earn the foreigh rf rate hedge both - earn the domestic rf rate the ques will be more clear. don’t worry.
I think if they ask hedged return first they will provide the context. So you will know what to hedge and with what to hedge. Hedged return will be the return on your original position (your long stocks etc.) and plus the return on your hedge instrument (lets say short currency futures)
bips Wrote: ------------------------------------------------------- > fsa-sucker Wrote: > -------------------------------------------------- > ----- > > I think only currency is hedged. > > > wrong, acc to cfai it is very rare to hedge the > currency risk without hedging the market risk. > > hedge the market risk only - earn the foreigh rf > rate > hedge both - earn the domestic rf rate > > the ques will be more clear. don’t worry. That’s what I thought too. Hedge both and earn the domestic rfr, but they didn’t provide that as the answer for the pound/peso question on the mock exam. I think Hiya makes a point—the hedged return will be the return on your original position plus the return on you hedged instrument