Hedged returns confusing me

[broadex]

Are these statements inconsistent? All taken from CFAI material
1. Reading 19 “If the currency exposures of foreign assets could be perfectly and costlessly hedged, the hedge would completely neutralize the effect of currency movements on the portfolio’s domestic-currency return (RDC)…. meaning that the domestic-currency return is then equal to the foreign-currency return (RDC = RFC)”
2. Reading 19 ..also goes on to say if foreign market returns are hedged (without hedging fx), then the domestic return is equal to foreign risk free rate. However if both the market return and the foreign currency are hedged, the hedged return is the domestic risk free rate.
3. Reading 23 “If the investor can hedge fully then the (fully) hedged return, is equal to the sum of domestic risk free rate plus the forward discount (premium).”

 

[pollfre]

I have the same issue with that topic. Extremely confusing.

 

[vicky_cool400]

S2000 magicians please help

 

[tozerrt]

^Vicky- just go to konvexity and you’ll pass with flying colours.

 

[June06]

Reading 19: Ignore hedging cost.
Reading 23: Include.

 

[Buffettology88]

All the statements make sense. Let me explain.
1) + 3) are both referring to if you only hedged currency return. In this case, the foreign currency return = the domestic currency return. What your left with is the foreign asset return + (difference in risk free rates).
2) is if you hedge foreign asset return. In this case your return is just the foreign risk free.
Hope that helps.

 

[Audacious]

tozerrt wrote:
^Vicky- just go to konvexity and you’ll pass with flying colours.

am not for same sex marriage, but am definitely coming for yours. Your complement each other. Tozertt ads a coolness factor to Vicky

 

[vicky_cool400]

broadex wrote:
Are these statements inconsistent? All taken from CFAI material
1. Reading 19 “If the currency exposures of foreign assets could be perfectly and costlessly hedged, the hedge would completely neutralize the effect of currency movements on the portfolio’s domestic-currency return (RDC)…. meaning that the domestic-currency return is then equal to the foreign-currency return (RDC = RFC)”
2. Reading 19 ..also goes on to say if foreign market returns are hedged (without hedging fx), then the domestic return is equal to foreign risk free rate. However if both the market return and the foreign currency are hedged, the hedged return is the domestic risk free rate.
3. Reading 23 “If the investor can hedge fully then the (fully) hedged return, is equal to the sum of domestic risk free rate plus the forward discount (premium).”

broadex u have bought konvexity material also right ? How are you doing on the sectional tests