Can someone help explain the intuition? if the foreign rate is higher than the domestic rate, then you sell the foreign currency forward. I dont understand why selling the currency forward would produce a negative currency return.
Example - US rate is 4%, Euro rate is 5%. IRP states that the Euro would depreciate by 1% (negative LCR). If I sold Euros forward and the value of the Euro declines, wouldn’t that create a position return on my hedge?