CFA CFA Level 3 Active Currency Management

Active Currency Management

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      I would initially agree with you @peekabooitsme as well…. Are we missing something? Interest rates?

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      Hmm… Would have thought the same.  Or the EUR will depreciate… (same thing)…  Which problem is this in the book?

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      Only way the answer is actually false is if it meant [expected] spot rate?

    • Avatar of hairyfairyhairyfairy
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        What? I don’t get it. Surely then that context has to be included with the question?

      • Avatar of peekabooitsmepeekabooitsme
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          • CFA Level 3
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          It was from the slides in the Schweser class. 

          The response by the instructor: This is a simple case of
          the forward market being in contango with the forward rate being above the
          current spot rate. In this situation as the contract matures the forward rate
          will converge to the spot rate and since the forward rate is above the spot
          rate the forward rate will fall so if you had bought the EUR at the forward
          rate of 1.133 USD/EUR at maturity of the contract you would suffer a loss
          because the spot rate at maturity would be below the forward rate of 1.133
          USD/EUR. You would be paying more for the EUR than it would currently be worth. 

          If they asked this on the exam I think I would still get it wrong. 

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