Yield curve strategies #27 (reading 20)

So there is this official problem that looks kind of way too long for a typical CFA problem or maybe I am too tired/dumb to get a hold of it.

The problem asks for highest returns on various portfolios. The right choice involved hedging the currency that is not expected to appreciate/depreciate against the other one. Then it moves to calculating returns on the bond in six months and so and so. It is IMO way too long and seems that it is not properly covered in the actual reading. I would appreciate if someone could shed some light here.


There is no way for me to understand that question. Totally frustrated. If see this on an exam day, just give up.

Don’t give it up just yet. Go and make it your bitc*. “Smooth seas do not make skillful sailors” African Proverb. Anyway, if you have any question, just ask. I’m sure all your fellows here will be willing to help. Keep it tight buddy!! :v:

To which problem this thread is even in regarding to? hit me.

See the topic for problem number.

You will not get a problem this complex on the exam.

Its purpose to to help teach you the material, and does not represent anything close to a typical exam question.


Please for fixed income, yield curve strategies. Under inter-market positioning. Example 5, Question 4. On page 191, paragraph 3 of d curriculum, it reads, "changing from buying d $1million German 10s (per tentative plan) to selling $1 million would free up $2 million. Please where is d $2 million coming from?

2nd, in exhibit 53, why was the UK 2s intra market trade not switched to buy despite being a positive return? Why will I sell an asset whose return is positive? Same applies to UK 30s too but was used later or is there a criteria to know when to switch and when not to? Maybe I missed something.

You were going to buy a cup of Starbuck’s for USD 4.25.

Instead, you didn’t buy the coffee, and some kind stranger gave you USD 4.25.

You now have USD 8.50 to spend on whatever you like (e.g., cinnamon rolls).

I reached this thread, with the same frustration, as i was totally thrown off by its wordings and complexity.
Now a bit reassured to know this is not an idiosyncratic issue

Without prejudice and absolutely my own :slight_smile:

I don’t care if anything shows up in the exam or not but if there’s a thing to learn I would take it up. No matter what. Spend time and effort to understand the stuff. I mean you are a couple of steps away from claiming your Charter. Sometimes early this year I did address a carry trade yield curve problem along with the magician. The OP was “California dreaming”. Do peruse that. It may help.

FI and Derivatives are considered hard topic areas in Level III. I can’t seem to understand why . Of course I had my nemesis in the form of Behavioural Finance. But that’s another story. Can’t let FI prove to be a challenge.

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