In a CFA PM Mock Exam, one of the questions under “Hedging” asks which of the three strategies earns the U.S. risk-free rate:
(1) Forwards—sell euro and buy US dollars Futures—buy US stock market
(2) Forwards—sell euro and buy US dollars Futures—sell European stock market
(3) Forwards—buy euro and sell US dollars Futures—sell European stock market
I understand why the answer wouldn’t be (1) or (3), so by elimination we could deduce (2). But I still don’t understand why #2 is the US risk-free rate (…no pun intended). Could someone please take a moment to explain? Greatly appreciated.