Did anayone find the cirriculumn does a poor job in explaining this? My understanding of the roll yield is if you hold long position of the base currency, if forward rate is higher, you have a negative roll yield. The roll yield is against you. Am i right?
The Example 4 says a different story:
HKD/GBP SPOT:12.4610 6-month forward: 12.6550
“Kwun Tong is long the GBP against the HKD, and HKD/GBP is selling at a forward premium of +1.6% compared with the current spot rate. All else equal, this is the expected roll yield—which is in the firm’s favor, in this case, because to implement the hedge Kwun Tong would be selling GBP, the base currency in the quote, at a price higher than the current spot rate. ”
The example says the roll is in the company’s favor? The roll yield is negative right? It’s aginst the company.
The Example 4 says a different story:
HKD/GBP SPOT:12.4610 6-month forward: 12.6550
“Kwun Tong is long the GBP against the HKD, and HKD/GBP is selling at a forward premium of +1.6% compared with the current spot rate. All else equal, this is the expected roll yield—which is in the firm’s favor, in this case, because to implement the hedge Kwun Tong would be selling GBP, the base currency in the quote, at a price higher than the current spot rate. ”
The example says the roll is in the company’s favor? The roll yield is negative right? It’s aginst the company.