Schweser Exam 3AM, #9

The answer to the last part of this problem (part D) that discusses breakeven spread analysis for a foreign bond, includes the currency impact. However, if you look at the CFAI books they explicitly say not to include this… Yet another mistake…unless I am missing something here.

willispierre Wrote: ------------------------------------------------------- > The answer to the last part of this problem (part > D) that discusses breakeven spread analysis for a > foreign bond, includes the currency impact. > However, if you look at the CFAI books they > explicitly say not to include this… > > Yet another mistake…unless I am missing > something here. Yes, why Schweser bring in the currency impact ? And I don’t get it in its solution.

I think currency impact is used because the Q states “…Greystone believes that Intl bonds must be evaluated in terms of their potential for excess returns”. Excess return does take the countries’ risk-free rate (forward premium/disc) into consideration. Schweser didn’t do a good job to explain this IMO. The following 2 threads may be helpful as well. http://www.analystforum.com/phorums/read.php?13,1146690,1146735#msg-1146735 http://www.analystforum.com/phorums/read.php?13,1145372,1145991#msg-1145991

James@Houston, TKVM ! I did not see those two threads.