【夢軒考 專業(yè)提供CFAFRM全 +講SS9：Assetallocationandrelateddecisionsin【夢軒考 SS1-ETHICS&PROFESSIONALSS1-ETHICS&PROFESSIONALSSSSSSSSPORTFOLIOMANAGEMENTFORINSTITUTIONALSSSSSSEPORTFOLIOMANAGEMENTSSEPORTFOLIOMANAGEMENTSSSSSSRISKSSRISKMANAGEMENTAPPLICATIONSOFSSSSSS2-

專業(yè)提供CFAFRM全 +講【夢軒考 Frameworkof

專業(yè)提供CFAFRM全 +講R18R18CurrencyManagement:AnR19Marketindexesand 3-【夢軒考 專業(yè)提供CFAFRM全 +講PriceandBaseBasecurrency:denominatoroftheexchangerateanditispricedintermsofthenumerator.Unlessclearlyidentifiedotherwise,theterms―buy‖andsell‖refertothesebasecurrency.E.g.sellspot1,000,000atCAD/USD0.9800isassumedtomeansellfor―imediatedelivery‖1,000,000U.S.dollarsandbuy980,000CanadianE.g.buy5000,000USD/CHFsixmonthsforward1.07isassumedtomeanbuy500,000Swissfrancs,settlinginsixmonthsversussellUSD535,000.4-【夢軒考 Bid/Asked

專業(yè)提供CFAFRM全 +講Bid/Askedrules:boththebidandtheaskedcanbeinterpretedthesaleofonecurrencyversusthepurchaseoftheotherThedifferenceisthedealer’sprofitmargintobuyorsellThecustomerpaysthebid/askspread,payingmorereceivinglessintheAquoteof0.9790/0.9810CAD/USDhasfourBuy1.0000USDandSell0.9810CADandSell1.0000USDandreceiveBuy0.9790CADanddeliver5-【夢軒考 專業(yè)提供CFAFRM全 +講Example：Spotandforwardbid/askedSpotandforwardbid/askedquotesoftheAustralianSpotQuote/ForwardSpot3090Whatisthe30dayforwardbid/offeredIfamanagersells1,000,000AUDforward90days,calculatewhatthemanagerwilldeliverandreceive.Whenwilltheexchangetake6-【夢軒考 專業(yè)提供CFAFRM全 +講Example：Spotandforwardbid/askedAnswer:Theforwardpointsareanadjustmenttotherightmostdigitsofthespotquote.Forthebid1.2571-1.0isactually1.2571-0.00010=1.25700.Fortheasked1.2574-0.9isactually1.2574-0.00009=1.25731.The30-dayforwardquoteis1.25700/1.25731Theexchangewillbe90daysfromthetradedate,atexpiration.ThemanagerwilldeliverAUD1,000,000The90-dayforwardquotesare1.2571+0.00117by1.2574+0.00120,whichis1.25827/1.2860fortheAUD/EUR.managerisdeliveringAUDandreceivingEUR.ThemanagermustdelivermoreAUDorreceivefewerEUR.Inthiscase,thebid/askedquotesarebothfor1EURandthemanagerwilldeliverAUD.ThemanagermustdeliveratAUD/EUR1.25860ThemanagerwillreceiveEUR:AUD1,000,000/(1.25860AUD/EUR)=EUR 7-【夢軒考 專業(yè)提供CFAFRM全 +講OffsettingtransactionsandmarktoForwardDonotrequiremarktomarketcashflowexchangespriorDesirableorrequiredforregulatorypurposestomarkpositiontomarketMark-to-marketvalue:presentvalueofanygainorlossthatwouldberealizedifthecontractwereclosedearlywithanoffsettingcontractposition8-【夢軒考 專業(yè)提供CFAFRM全 +講Example：OffsettingBasedontheinitialquotesgiveninthepreviousexample,adifferentmanagerenteredintoatradetosell(deliver)90daysforward,EUR10,000,000atthe―a-lin‖forwardquoteofAUD/EUR1.25827.Thirtydayshavepassedandexchangeratesarenowthefollowing:Maturity/SpotQuote/ForwardLIBORRatesSpot306090Identifytheoffsettingpositionthemanagerwouldtaketoclosetheinitialtransactionandcalculatetheresultinggainorloss.Whenwillthisgainorlossbesettled?Calculatethemarktomarketthemanagerwouldreportonday30oftheoriginaltradeifthetradewerenotclosedoutearly.9-【夢軒考 專業(yè)提供CFAFRM全 +講Example：OffsettingThirtydayshavepassedandtheinitialtradetosellEUR10,000,000forwardhas60daysuntilexpiration.Theoffsettingtransactionistobuy10,000,000EUR60daysforward.Step1:Identifytheforwardexchangeratefortheoffsettingposition.ThemanagermustbuyEUR10,000,000(whichrequiresdeliveringAUD)60daysforwardatAUD/EUR1.3191+0.00105,whichisAUD/EUR1.32015.Step2:In60days,themanagerwilldotheOntheoriginaltrade:sellEUR10,000,000andbuyAUDat1.25827.ThemanagerwillreceiveAUDOntheoffsettingtrade:buyEUR10,000,000andsellAUDAUD/EUR1.32015.ThemanagerwillpayAUDThedifference,alossofAUD618,800,willbesettledandpaid90daysafterinitialtransactionand60daysaftertheoffsetting10-【夢軒考 專業(yè)提供CFAFRM全 +講Example：OffsettingThecurrentmarktomarketisthepresentvalueofthegainorlossthatwouldbelockedinwithanoffsettingtransaction.ThatoffsettinglosswascalculatedinSolution1asAUD618,800.The60-dayLIBORrateontheAUDis1.20%Mark-to-marketloss=AUD618,800/(1+(0.012(60/360)))11-【夢軒考

專業(yè)提供CFAFRM全 +講Example:ValuingaforwardcontractpriortoYewMunYiphasenteredintoa90-dayforwardcontractlongCAD1millionagainstAUDataforwardrateof1.05358AUD/CAD.Thirtydaysafterinitiation,thefollowingAUD/CADquotesareavailable：30-60-90-180-Thefollowinginformationisavailable(att=30)forAUDinterest30-dayrate：60-dayrate：90-dayrate：Whatisthemark-to-marketvalueinAUDofYip'sforward12-【夢軒考

專業(yè)提供CFAFRM全 +講TheforwardbidpriceforanewcontractexpiringinT-t=60days1.0612+8.6/10,000=Theinterestratetousefordiscountingthevalueisalsothe60-dayinterestrateof1R 1R 13-【夢軒考

專業(yè)提供CFAFRM全 +講Mark-to-marketvalueofaforwardThevalueoftheforwardcontractwillchangesasquotesforthecurrencypairchangeintheThevalueofaforwardcontract(tothepartybuyingthecurrency)atmaturity(timeT)Thevalueofaforwardcurrencycontractpriortoexpirationalsoknownasthemark-to-marketTT 360 360 14-【夢軒考 FX

專業(yè)提供CFAFRM全 +講TheFXswapisnotacurrencyswaporevenaswapasthattermisotherwiseused.TheFXswaprollsoveramaturingforwardcontractusingaspottransactionintoanewOnwardcontract.Anexistingforwardis'swapped"foranotherforwardExample:Amanagerpurchased10,000,000SouthAfricanrand(ZAR)threemonthsforwardatZAR/USD0.1058.Twodaysbeforecontractexpirationthemanagerdecidestoextendthetransaction(W)another30days.Ex intheFXswapusedtoimplementthisdecision.Answer:ThemanagersellsspotZAR10,000,000tooffsetthematuringcontract.Boththeinitialforwardandoffsettingspottransactionwillsettleintwobusinessdays.Themanagerentersanew30-dayforwardcontracttobuyZAR10,000,000versustheUSDtorolloverthetrade.15-【夢軒考 Option

專業(yè)提供CFAFRM全 +講Calloption：arighttobuytheunderlyingandgainsvalueastheunderlyingrisesabovethestrikepriceItsdeltaapproaches1.00(a100-Thecalllosesvalueastheunderlyingfallsbelowthepriceanditsdeltaapproaches0.00(a0-Putoption：righttoselltheunderlyingandgainsvalueasunderlyingfallsbelowthestrikeItsdeltaapproaches-100(thiscanalsobereferredtoasadelta,thenegativesignisassumedandnotTheputlosesvalueastheunderlyingrisesabovethepriceandthedeltaapproaches0.00(a0-Foracallandaputwithidenticalparameters(timetoexpiration,strikeprice,andpriceoftheunderlying),thesumoftheabsolutedeltasis1.00or100-delta.16-【夢軒考 專業(yè)提供CFAFRM全 +講CurrencyOptionCurrencyoptionsrequiretwocurrenciesandacallononeisaputontheotherUnlessotherwisespecified,theoptionisfromthe E.g.acalloptiontobuy10,000,000atastrikepriceZAR/GBPItistherighttobuy10,000,000Britishpoundsandsell145,600,000SouthAfricanrand.Itisalsoaputoption—therighttosell145,600,000SouthAfricanrandandbuy10,000,000Britishpounds.17-【夢軒考 專業(yè)提供CFAFRM全 +講ImportantrelationshipsbetweencallandAsthePriceoftheBateCurrencyTheCallOptionBuytheBaseThePutOptiontoselltheBaseCurrencyFrom0totheIsout-of-the-moneyandrisinginvalue. shiftingFrom0.0toward0.5(froma0-deltatoaIsin-the-moneyandfallinginvalue.Deltaisshiftingfrom-1.0toward-0.5(fromadeltatoa50-TotheIsat-the-money.Deltaisapproximay0.5(a50-approximay-0.5(a50-FromthepriceIsin-the-moneyandrisinginvalue.Deltaisshiftingfrom0.5toward1.0(froma50-deltatoa100-delta).invalue.Deltaisshifting-0.5toward0.0(fromadeltatoa0-18-【夢軒考 專業(yè)提供CFAFRM全 +講EffectsofCurrencyonPortfolioRiskandDomesticcurrencyorhomecurrency:thecurrencyoftheinvestor(orthecurrencyinwhichportfolioresultsarereportedand Domesticasset:assetdenominatedintheinvestor’sdomesticForeigncurrencyandforeignasset:acurrencyotherthantheinvestor'sdomesticcurrencyandanassetdenominatedinthatforeigncurrency(localcurrency,orlocalmarket).Foreign-currencyreturn(RFC):returnoftheforeignassetmeasureditslocal(foreigncurrencyalsocalledthelocalmarketreturnLocalcurrencyreturn(RFX):thepercentagechangeinthevalueofforeigncurrencyDomestic-currencyreturn(RDC):returnindomesticcurrencyunitsconsideringboththeforeign-currencyreturn(RFC)andthepercentagechangeinvalueoftheforeigncurrency(RFX)19-【夢軒考 專業(yè)提供CFAFRM全 +講EffectsofCurrencyonPortfolioRiskandTwosourcesofriskandreturnofaforeignassetpricedinforeignThereturnontheassetsintheforeignThereturnontheforeigncurrencyfromanychangeinitsexchangeratewiththeinvestor’sdomesticcurrencyRDC(1RFC)(1RFX)1RFCRFX(RFC)(RFX20-【夢軒考 專業(yè)提供CFAFRM全 +講Example:CalculatingdomesticcurrencyConsideraUSD-basedinvestorwhoinvestsinaportfolioofstocksthattradeineuros.Overaone-yearholdingperiod,thevalueoftheportfolioincreasesby5%(ineuros)andtheeuro-dollarexchangerateincreasesfrom1.300USD/EURto1.339USD/EUR.TheEURhasappreciatedwithrespecttotheUSD,sotheinvestorhasreturnsfromforeignexchangeRFX=1.339/1.300—1=0.03=Theinvestor'sreturnindomesticcurrencytermsovertheone-yearperiodRDC=(1.05x1.03)—1=0.05+0.03+(0.05)(0.03)=0.0815=SimplyaddingRFCandRFX(5%+3%=8%)yieldsanapproximationofdomesticcurrencyTheexchangeratequotesmustusetheforeigncurrency(EUR)asthebasecurrency(thedenominator)tocalculatethechangeinthevalueofthecurrency21-Portfiew 】6482t供CAF f視iAninvestormayinvestinmultiplemarketswithdifferentcurrencies.Inthatcase,thedomesticportfolioreturnisaweightedaverageofthedomesticcurrencyreturnsforeachinvestment.

RD wi(RDC,ininWi=theproportion(indomesticcurrencyterms)ofportfolioinvestedinassetstradedincurrencyIRDC,i=thedomesticcurrencyreturnforasseti22-Examl考資 uQ6484rt業(yè)提供CFRM高sintwoforeignAeuro-basedinvestorhasa75%positioninGBPdenominatedassetsanda25%positioninUSDdenominatedassets.Theresultsforthepastyeararethefollowing.RFCfortheGBPassets=12%RFCfortheUSDassets=5%BeginningEUR/GBPexchangerate:0.8572EndingEUR/GBPexchangerate:0.8404BeginningUSD/EURexchangerate:1.332EndingUSD/EURexchangerate:1.324Calculatetheinvestor'sreturnovertheperiodindomesticcurrency23-Examl考資 uQ6484rt業(yè)提供CFRM高sintwoforeignFirst,calculatetheRDC(inEUR)foreachFortheinvestmentdenominatedinGBP,wehave

Theforeigncurrency(GBP)hasdepreciatedapproxima y2%relativetotheeuro.Thenegativecurrencyreturnreducesthe12%returnoftheforeignmarket.FortheinvestmentdenominatedinUSD,theexchangeratesweregivenwiththeforeigncurrency(USD)inthenumerator.Thesecanbeinvertedtomaketheinvestor'scurrency(theeuro)thepricecurrencyandtheforeigncurrency(USD)thebasecurrency.1/1.332=0.75081/1.324=0.755324-Examl考資 Q6484rt業(yè)提供CFRM高sintwoforeignAllowingtheinvestmentdenominatedinUSDRDC(inEUR)tocalculated

1.050.75530.750811.05001.00601 Theforeigncurrency(USD)hasappreciatedapproximay0.6%relativetotheturn.Thepositivecurrencyreturnincreasesthe5%returnoftheforeignmarket.Theinvestor’stotalportfolioreturnistheweightedaverageoftheRD，F(xiàn)oreachmarket:0.759.80%0.255.63%7.351.4125-

【夢軒考 專業(yè)提供CFAFRM全 +講InvestinginaforeigndenominatedThefluctuationoftheforeignThefluctuationinforeigncurrencypriceoftheforeignVarianceforatwoassetC C X C 2 )2 )2 )C C X C isthecorrelationbetweenRFCandVarianceforoneasset (RDC)(RFX)(1RFC26-

【夢軒考 專業(yè)提供CFAFRM全 +講RiskstodomesticDependsonthestandarddeviationofRFCandMaybehigherforourdomesticinvestorbecausestandarddeviationofRFXisanadditivetermintheequation.However,correlationalsomatters.IfthecorrelationbetweenRFCandRFXisnegative,thethirdcomponentofthecalculationesnegative.Thecorrelationmeasuresthein ctionofRFCandRFXIfthecorrelationispositive,thenRFCreturnsareamplifiedbyRFXreturns,increasingthevolatilityofreturntoourdomesticIfthecorrelationisnegative.thenRFCreturnsaredampenedbyRFXreturns,decreasingthevolatilityofreturntoourdomesticinvestor.(Thisisdiscussedfurtherunderthethisreading'stopicofminimumvariancehedgeratio).27-

【夢軒考 專業(yè)提供CFAFRM全 +講IfRFCisaRisk- Return:itsstandarddeviationandcorrelationwithRFXarezero.(RDC)(RFX)(1RFCRFC=thereturnonaforeigncurrencydenominated 28-【夢軒考 Strategic

專業(yè)提供CFAFRM全 +講ArgumentsfornothedgingcurrencyItisbesttoavoidthetimeandcostofhedgingortradingInthelong-run,unhedgedcurrencyeffectsarea―zersumgame‖;ifonecurrencyappreciates,anothermustInthelong-run,currenciesreverttoatheoreticalfairArgumentsforactivemanagementofcurrencyIntheshortrun,currencymovementcanbeextreme,andinefficientpricingofcurrenciescanbeexploitedtoaddtoportfolioreturn.Manyforeignexchange(FX)tradesaredictatedbyinternationaltradetransactionsorcentralbankpolicies.Thesearenotmotivatedbyconsiderationoffairvalueandmaydrivecurrencypricesawayfromtheirfairvalue.29-【夢軒考 StrategicCurrencymanagement

專業(yè)提供CFAFRM全 +講Passiveapproach:matching arkcurrencyActivestrategy:treatscurrencyexposureindependently arkexposuresandseekstoprofitfrom(ratherthanhedgeof)currencyPassiveRule atchestheportfolio'scurrencyexposuretoofthe ItwillrequireperiodicrebalancingtomaintaintheThegoalistoeliminatecurrencyriskrelativeto allowsthemanagertodeviatefrompassivehedgingbyaspecifiedpercentage.E.g.allowing5%deviationsfromthe atiothatwouldmatchacurrency'sexposuretothe arkThegoalistoreducecurrencyriskwhileallowingmanagertopursuemodestincrementalcurrencyrelativetothe 30-【夢軒考 StrategicActivecurrency

專業(yè)提供CFAFRM全 +講allowsamanagertohavegreaterdeviationsfrom currencyThisdiffersfromdiscretionaryhedgingintheamountdiscretionpermittedandthemanagerisexpectedtopositiveincrementalportfolioreturnfrommanagingaportfolio'scurrencyexposure.Thegoalistocreateincrementalreturn(alpha),nottoCurrencyabroadtermcoveringtheoutsourcingofcurrencyAttheextreme,theoverlaymanagerwilltreatcurrencyasassetclassandmaytakepositionsindependentofotherportfolioassets.Seekingincrementalreturn,anoverlaymanagerwhoisbearishontheSwedishkrona(SEK)foraportfoliowithnoexposuretotheSEKwouldshorttheSEK.Themanagerispurelyseekingcurrencyalpha(incrementalreturn),not31-【夢軒考 專業(yè)提供CFAFRM全 +講StrategicDecisions:Theaccount's onwhethertohedgeornottohedgecurrencyriskshouldberecordedinthe'sinvestment SectionsoftheIPSthatwillbeparticularlyrelevantinreachingthisstrategicdecisionincludeinvestorobjectives(includingrisktolerance),timehorizon,liquidityneeds,andthe arktobeused yzingportfolioTheIPSshouldalsoThetargetpercentageofcurrencyexposurethatistobeAllowablediscretionforthemanagertovaryaroundthisFrequencyofrebalancingthe arkstouseforevaluatingtheresultsofcurrencyAllowable(orprohibited)hedging32-【夢軒考 Strategic

專業(yè)提供CFAFRM全 +講StrategicDiversificationInthelongerrun,currencyvolatilityhasbeenlowerthanintheshortrun,reducingtheneedtohedgecurrencyinportfolioswithalong- Positivecorrelationbetweenreturnsoftheassetmeasuredintheforeigncurrency(RFC)andreturnsfromtheforeigncurrency(RFX)increasevolatilityofreturntotheinvestor(RDC)andincreasetheneedforcurrencyhedging.Negativecorrelationdampensreturnvolatilityanddecreasestheneedtohedge.Correlationtendstovarybytimeperiod,providingdiversificationinsomeperiodsandnotinothers,suggestingavaryinghedgeratioisEmpiricalevidenceindicateshigher,positivecorrelationinbondsthaninequityportfolios,suggestingthathedgingismoreappropriateforbondportfolios.Thismakestheoreticalsensebecauseinterestratemovementtendstodrivebothbondpricesandcurrencyvalues.Thehedgeratio(thepercentageofcurrencyexposuretohedge)variesbymanagerpreference.33-【夢軒考 Strategic

專業(yè)提供CFAFRM全 +講StrategicCostThebid/askedtransactioncostonasinglecurrencytradeisgenerallysmall,butrepeatedtransactioncostsaddup.Fullhedgingandfrequentrebalancingcanbecostly.Purchasingoptionstohedgeinvolvesanupfrontoptionpremiumcost.Iftheoptionexpiresout-of-the-money,thepremiumislost.Forwardcurrencycontractsareoftenshortertermthanthehedgingperiod,requiringcontractsberolledoverastheymature(anFXswap).Thehedgelowersreturnvolatilitybuttherollovercancreatecashflowvolatilitywithrealizedgainsandlossesonthematuringcontracts.Financingcashoutflowswheninterestratesarehighcanbecostlyastheinterestthatwouldhavebeenearnedonthefundsislost.34-【夢軒考 Strategic

專業(yè)提供CFAFRM全 +講StrategiccostOverheadcostscanbehigh.Abackofficeandtradinginfrastructureareneededforcurrencyhedging.Cashaccountsinmultiplecurrenciesmayhavetobemaintainedtosupportsettlementsandmarginrequirements.Onehundredpercenthedginghasanopportunitycostwithnopossibilityoffavorablecurrencymovement.Somemanagerselectto"splitthedifference"between0and100%hedgingandadopta50%strategichedgeratio.Hedgingeverycurrencymovementiscostlyandmanagersgenerallychosepartialhedges.Theymayhedgeandrebalancemonthlyratherthandailyoracceptsomeamountofnegativecurrencyreturnratherthanzero.35-Stratiwwazio】uQ04442FFMtrFactorsshiftthestrategicdecisionAshorttimehorizonforportfolioHighrisk whoisunconcernedwiththeopportunitycostsmissingpositivecurrencyHighshort- eandliquiditySignificantforeigncurrencybondLowhedgingswhodoubtthebenefitsofdiscretionary36-【夢軒考 專業(yè)提供CFAFRM全 +講TacticalCurrencyEconomicfundamentals:assumesthat,inthelongterm,valuewillconvergetofairIncreasesinthevalueofacurrencyareassociatedMoreundervaluedrelativetotheirfundamentalWiththegreatestrateofincreaseintheirfundamentalWithhigherrealornominalinterestWithlowerinflationrelativetootherOfcountrieswithdecreasingriskOppositeconditionsarebelievedtobeassociatedwithdecliningcurrencyvalues37-【夢軒考 專業(yè)提供CFAFRM全 +講TacticalCurrency ysisbasedonthreePastpricedatacanpredictfuturepricemovementandbecausethosepricesreflectfundamentalandotherrelevantinformation,thereisnoneedto suchinformation.FalliblehumanbeingsreacttosimilareventsinsimilarwaysandthereforepricepatternstendtoItisunnecessarytoknowwhatthecurrencyshouldbeworth(basedonfundamentalvalue);itisonlynecessarytoknowwhereitwilltrade.TypicalpatternsthattechniciansseektoAnoverbought(oroversold)markethasgoneup(ordown)toofarandtheislikelytoAsupportlevelexistswheretherearesubstantialbidsfromcustomerstobuy.Apricethatfallstothatlevelisthenlikelytoreverseandbouncehigherasthepurchasesareexecuted. levelexistswheretherearesubstantialoffersfromcustomerstosell.Apricethatrisestothatlevelisthenlikelytoreverseandbouncelowerasthesalesareexecuted.38-【夢軒考 專業(yè)提供CFAFRM全 +講TacticalCurrency ysislooksatpastpriceandvolumetradingdata.FX ysisfocusesonpricetrendsasvolumedataisgenerallylessavailable.Technical ysisworksbestinmarketswithidentifiabletrends.Atbothsupportand levels,theprice es"sticky."However,ifthemarketmovesthroughthesticky itcanthenaccelerateandcontinueinthesamedirection.Movingaveragesofpriceareoftenusedintechnical ysis.Acommonruleisthatifashorter-termmovingaveragecrossesalonger-termmovingaverage,ittriggersasignal.39-【夢軒考 TheCarry

專業(yè)提供CFAFRM全 +講AcarrytradereferstoborrowinginalowerinterestratecurrencyandtheproceedsinahigherinterestrateCoveredinterestrateparity(CIRP)holdsbyarbitrageandestablishesthatthedifferencebetweenspot(So)andforward(Fo)exchangeratesequalsthedifferenceintheperiodicinterestratesofthetwocurrencies.Thecurrencywiththehigherinterestratewilltradeatadiscount,F0<Thecurrencywiththelowerinterestratewilltradearapremium,Fo>Thecarrytradeisbasedonaviolationofuncoveredinterestrate(UCIRP).IfthiswereThecurrencywiththehigherinterestratewilldecreaseinvaluebytheamountoftheinitialinterestratedifferentialThecurrencywiththelowerinterestratewillincreaseinvaluebytheamountoftheinitialinterestratedifferential.Iftheseexpectationsweretrue,acarrytradewouldearnazero40-【夢軒考 TheCarry

專業(yè)提供CFAFRM全 +講Becausethecarrytradeexploitsaviolationofinterestrateparity,itcanbereferredastradingtheforwardratebias.Historicalevidenceindicatesthat:Generally,thehigherinterestratecurrencyhasdepreciatedlessthanpredictedbyinterestrateparityorevenappreciatedandacarrytradehasearnedaprofit.However,asmallpercentageofthetime,thehigherinterestratecurrencyhasdepreciatedsubstantiallymorethanpredictedbyinterestrateparityandacarrytradehasgeneratedlarge41-【夢軒考 FXCarry

專業(yè)提供CFAFRM全 +講Interest Currency OneyearU.K.U.S.

ComputetheprofittoaninvestorborrowingintheUnitedStatesandintheAnswer:return=interestearnedoninvestment–fundingcost-depreciation=3%-1%-0%=Theriskisthatthefundingcurrencymayappreciatesignificantlyagainstcurrencyofthe42-【夢軒考 CarryTrade:

專業(yè)提供CFAFRM全 +講ThespotexchangerateisBRL/USD2.41.Theinterestratesintwocountriesare6%and1%,Estimatetheone-yearforwardexchangeratefortheStatethestepstoinitiatethecarrytradeandthetheorywhichitisWhatistheprofitonthetradeifthespotexchangerateisunchangedandthetradeisinitiatedbyborrowing100currencyunits?Showyourwork.Whatistheprimaryriskinthis43-【夢軒考 CarryTrade:

專業(yè)提供CFAFRM全 +講1.TheforwardexchangeratefortheRealshouldbe y5%belowthecurrentspotexchangeratetoreflecttheinitialinterestratedifferential.Theprecisecalculationis:BRL/USD2.41x(1.06I1.01)1=BRL/USDBorrowUSDat1ConvertUSDtoBRLatthespotexchangerateBRL/USDInvesttheBRLatThecarrytradeisbasedonaviolationofuncoveredinterestrateparity.Itisprofitableifthespotexchangerateofthehigherinterestratecurrencydeclineslessthanpredictedbytheforwardexchangerate.44-【夢軒考 CarryTrade:

專業(yè)提供CFAFRM全 +講3.Itis5%,reflectingtheinitialinterestratedifferenceandunchangedspotexchangerate.BorrowUSD100creatingaloanpayableofUSDConvertUSD100toBRL241(=100xInvesttheBRL241at6%creatinganendingvalueofBRLConverttheBRL255.46attheunchangedspotexchangeratebacktoUSD106.00(=255.46I2.41).PayofftheUSDloanforaprofitofUSD5.00ona100initial4.ThisisanunhedgedtradeandtheprofitorlossdependsontheendingvalueoftheBRL.IftheBRLdeclinesbymorethan5%,thetradeisunprofitable.45-【夢軒考 專業(yè)提供CFAFRM全 +講TheCarryTrade:Generally,thecarrytradeisimplementedbyborrowinginthelowerinterestratecurrenciesofemergingeconomies(investingInperiodsoffinancialstress,thecurrenciesofthehigherriskemergingeconomieshavedepreciatedsharplyrelativetothecurrenciesofdevelopedeconomiesandsuchcarrytradeshavegeneratedsignificantlosses. Giventhatperiodsoffinancialstressareassociatedwithincreasingexchangerarevolatility,tradersoftenexittheircarrytradepositionswhenexchangeratevolatilityincreases46-【夢軒考 專業(yè)提供CFAFRM全 +講SummaryoftheCarryTheIsBorrowingandthensellinginthespotmarkettheloweryieldTobuyandinvestinthehigheryieldInnormalmarketconditionswithlowcurrencyvolatility.ButcangeneratelargelossesinIstradingtheforwardrateSellinginthespotmarketthecurrencytradingatforwardAndbuyinginthespotmarketthecurrencytradingatforwarddiscountoffinancialandhighvolatilityasinvestorsfleehighrisk(yield)currencies47-Equivl考ww.xaoicmrate

Q04482tr供FiFM清+FP/BSP/

360SP/

1iB

360Whenthebasecurrencyhasalowerinterestratethanthepricecurrency(therightsideispositive)thebasecurrencywilltradeataforwardpremium(theleftsideispositive).Beinglow-yieldcurrencyandtradingataforwardpremium.Beinghigh-yieldcurrencymeanstradingataforwarddiscount.Borrowinginthelow-yieldcurrencyandinvestinginthehighyieldcurrency(carrytrade)ishenceequivalenttosellingcurrenciesthathaveaforwardpremiumandbuyingcurrenciesthathaveaforwarddiscount(tradingtheforwardratebias).48-【夢軒考 Volatility

專業(yè)提供CFAFRM全 +講Deltahedgingentailscreationofadelta-neutralpositionThedelta-neutralpositionwillnotgainorlosevaluewithsmallchangesinthepriceoftheunderlyingassets,butitwillgainorlosevalueastheimpliedvolatilityreflectinthepriceofoptionLongstraddle:managerexpectingvolatilitytoincreaseenteralongstraddlebypurchasinganat-the-moneycallandOptionwillriseinnetvalueandthetradewillbeprofitableasvolatilityincreases49-【夢軒考 Volatility

專業(yè)提供CFAFRM全 +講Shortstraddle:managerexpectingvolatilitytodecreaseenterashortstraddlebysellinganat-the-moneycallandTheoptionsfallinnetvalueasvolatilityTheoptionscanberepurchasedatlowerpricesforaStrangle:Ourof-the-moneycallsandputswiththesameabsolutedeltaarepurchased,providesimilarbutmoremoderatepayoffstoastraddle.Theout-of-the-moneyoptionsrequirelargermovementincurrencyvaluetocreateintrinsicvaluebutwillcostBoththeinitialcostandthelikelyprofitarelowerthanfor50-【夢軒考 專業(yè)提供CFAFRM全 +講FactorsaffecttacticaltradingReducethehedgeonorincreaselongpositionintheIncreasethehedgeonorthelongpositionintheLongstraddle(orShortstraddle(orAcarryDiscontinuethecarry51-【夢軒考 專業(yè)提供CFAFRM全 +講FactorsaffecttacticaltradingSubtlevariationsontheseAcarrytrademayinvolveabundleoffundingandinvestmentcurrenciesandpositionsneednotbeequallyweighted.Forexample,ifthemanagerexpectsaparticularcurrencytoshowgreaterrelativeincreaseinvalue,thetradewouldbestructuredwithincreasedlong(ordecreaseshort)positionsinthatDeltaneutralpositionscanbe"tilted"tonetpositiveornegativebasedonthemanager'sview.Amanagerexpectingacurrencytoappreciate(depreciate)couldshifttoanetpositive(negative)delta.52-【夢軒考 AdjustHedge

專業(yè)提供CFAFRM全 +講ForwardcontractsarepreferredforcurrencyTheycanbecustomized,whilefuturescontractsTheyareavailableforalmostanycurrencypair,whiletradeinsizeforonlyalimitednumberofFuturescontractsrequiremarginwhichaddsoperationalcomplexityandcanrequireperiodiccashflows.TradingvolumeofFXforwardsandswapsdwarfsthatofFXfutures,providingbetterliquidity.53-【夢軒考 AdjustHedge

專業(yè)提供CFAFRM全 +講Statichedge:establishedandhelduntilDynamichedge:periodicallyThechoiceofhedgingapproachshouldShortertermcontractsordynamichedgeswithmorefrequentrebalancingtendtoincreasetransactioncostsbutimprovethehedgeresults.HigherriskaversionsuggestsmorefrequentLowerriskaversionandstrongmanagerviewssuggestallowingthemanagergreaterdiscretionaroundthestrategic 54-【夢軒考 專業(yè)提供CFAFRM全 +講Example:AdjustHedgeConsideraEUR-basedmanagerwhomusthedgeaninitialCHF10,000,000ofassetexposure.Onemonthlater,theassethasappreciatedtoCHF11,000,000.Assumethemanagercaninitiallysellaone-orthree-monthcontractSell10,000,000CHFintheforwardmarketwithaone-monthforwardcontract.Twodayspriortothisinitialcontractexpiration,themanagermustrolloverthehedgeusinganFXswap(discussedintheintroductiontothistopicreview).ThemanagerwouldbuyCHF10millioninthespotmarkettocovertheshortpositionsintheforwardandsellforwardCHF11milliontorolloverthehedge.Thisistermeda"mismatched"FXswapbecausethe"near"spotlegand"far"forwardlegarenotofequalsize.BoththeshortforwardcontractandthespotmarketpurchaseofCHFareforCHF10,000,000andsettleintwobusinessdays.AnydifferencebetweentheEUR/CHFrateoftheinitialforwardcontractandthecurrentspotpricewillproducea(positiveornegative)cashflowinEUR.55-【夢軒考 專業(yè)提供CFAFRM全 +講Example:AdjustHedgeSell10,000,000CHFintheforward