To hedge or not? Finquiz test 2

Can any one help me understand this question?

After extensive research, Castillo decides to invest in Russian corporate bonds for TF’s portfolio. However, he has not reached a formal decision on whether to hedge the associated foreign currency exposure. He has collected relevant data for the analysis (Exhibit 1). He expects RUB to appreciate by 0.5% against the US$.

Exhibit 1 U.S. and Russian Exchange Rate and Interest Rates Data

Current spot rate

US$ 30 per RUB

1-year U.S. risk-free rate

3.5%

1-year Russian risk-free rate

2.2%

Yield on 10-year Russian government bonds

7.8%

Actual spot rate (in 1 year)

US$ 31.4 per RUB

  1. BasedonCastillo’sexpectations,should he hedge the currency risk associated with Russian corporate bonds? A. Yes, because the return from hedging is 0.8% greater. B. Yes,because there turn from hedging is1.3% greater. C. No,because there turn from remaining unhedged is 0.8% greater.

Very important question… u need an answer or u didnt understand the question? seems to me clear question

Sorry I mean I dont really get the alternatives and how to answer it properly too. If its obvious please explain the answer/

Russia is the Base, U.S. is the Price (pun intended)

1.035/1.022-1= 1.27 % interest rate differential (if hedged) vs. expected appreciation of 0.5%.

hedging is better by 1.27-0.5= 0.8%

other information are distractions.

is it A?

ah,… we have the same answer. seems we are matching. wonder if our interests are correlated.

Interests:

  • CFA. Check

  • What else ?

sarcasm [humor] : check.

  • Pizza

  • Parmesan cheese

  • The Godfather movie

  • Flashy shirts

wait, i think i went too far, how can i delete this?