Schweser Exam 2 afternoon session (practice exams 1) pg 119

Assuming all real interest rates and inflation rates are equal accross the US germany and japan, compared to the equity manager’s unhedge currency return, would it have been advantageous to:

Sell the EUR forward versus buy the USD?

Sell the EUR forward versus but JPY?

Relevant info below:

Euros per dollar BV: .75

Euros per dollar EV .70

Euros per yen BV: .00667

Eurs per yen EV: .00767

I have no idea how they got this answer… (NO to sell EUR Forward vs buy USD, YES to sell EUR forward vs buy yen) I realize unhedged currency return = (EV/BV) -1

So Euro currency return in USD terms is [(1/.70)/(1/.75)] -1 = 7.1%.

But I don’t undrestand how they determined the answer from there.

Thanks

Could you write the question well ?

sorry, I was rushed and stressed. Corrected some typos. Should make sense now.

Well I dont see any complication here. The USD and YEN are trading at premium. Compute the premium by your equasion EV/BV-1 . you can simply use the same exchange rae no matter in what term. if the US increased 10% the EURO must decreased 10%.

I don’t understand what currencies we are comparing with one another. what are we using as domestic/foreign currencies in each scenario?