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.