Student Lounge hedging question help!!

hedging question help!!

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      Any idea on the following question?

      I am a UK investor with GBP to invest, but want to invest in a USD denominated asset (eg shares representing a portion of the NAV of a USD base currency loan and bond fund). The characteristics of the USD denominated asset are:

      – Market value: USD 50m

      – Current USD coupon: 6% (annual, a/365)

      I want to hedge this asset back into GBP (as that is my base currency as an investor). I have just taken out the following spot and forward contract to do so (my hedging policy is to use rolling 1 month FX forwards):

      – Trade date: 24 Jan 18

      – Spot settlement date: 26 Jan 18

      – Spot leg: Buy USD 50m, sell GBP

      – Forward settlement date: 26 Feb 18

      – Forward leg: Buy GBP, sell USD 50m

      – Spot FX rate (expressed as USD per 1 GBP): 1.411

      – FX forward points: +15

      – FX forward rate: 1.4125

      What is the impact (as an annual rate, a/365) on the coupon on my investment as a result of the hedge taken out (ie what is my aggregated/net coupon in GBP terms including the yield impact of the share class hedging)?



    • Up

      Any help would be appreciated:)

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