Björk then examines the fund’s EUR-denominated exposures. Due to recent monetary tightening by the Riksbank (the Swedish central bank) forward points for the SEK/EUR rate have swung to a premium. The fund’s EUR-denominated exposures are hedged with forward contracts.
Anything FX gets my mind in a pretzel. So if Sweden is tightening (raising Swedish rates), then SEK should appreciate vs the EUR on capital inflows. In other words EUR should depreciate against the SEK.
Therefore I’d expect forward points (quoted in terms of EUR base currency) to swing to a discount.
What do I have wrong here? Appreciate any help.