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CFAI practice questions: Portfolio Trading-Perf Eval-GIPS - Chung
6-6 hedged return=Return in foreign currency+ forward discount=8.5-3.16=5.34
The given answer used spot and forward price to calculate the forward discount(-3.16%). However, the item set also provided foreign and domestic interest rate. The forward discount(-3.3%) calculated by IRP is different with previous method.
Hedged return can also be calculated using domestic risk-free interest rate(1.3%) plus local risk premium (8.5%-4.6%), it will give an answer with 5.2%.
Which method should be used here? And why?
Thank you in advance.