Currency return fully hedged.

S

sachin_patel

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
Is this true statement?
For fully hedged foreign currency, the currency return in domestic terms is equal to domestic interest rate for the period? (Provided that Interest rate parity holds)
Thanks.
 
this is my understanding
return in terms of forward rate premium = domestic interest rate - international interes rate
local return for the period = international interest rate
total return = addition of the two = domestic interest rate.
 
I think you might be confusing currency returns and asset returns in foreign markets. Your fully hedged currency return would be the difference in interest rates, locked in using a forward.
1+ FC / 1 + DC = (expected) Rfx -> hedge or not hedge based on economic forecast of interest rate movements
Local return = (Asset value @ T=1 / Asset Value @ t=0) -1
Rlc + Rfx = ~ Total return
 
Well let’s assume that my asset is cash equivalent in foreign currency.
so my local return is (foreign interest rates)
my currency return ~ domestic interest rate - foreign interst rate
so total return = domestic interest rate..
This is regarding Reading 29 EOC 11.
 
Are you saying:
Total return = foreign interest rate + domestic interest rate - foreign interest rate
=
Total return = foreign interest rate + domestic interest rate - foriegn interest rate
 
at least that’s what I made up from that EOC.. not sure if its always true.
 
You must log in or register to reply here.
Back
Top