Currency-Hedged Investing: Unhedged vs Hedged Returns, Forward Points, Hedge Costs, Partial Hedge Ratios & Rolling Hedges

What you'll build

What you will be able to do

Each lab ends with a concrete result that you build yourself and the checker confirms, cell by cell.

• Split the one-year results of six foreign funds held by a fictional investment club into the local return, the currency return and the return in home currency, and you measure the cross term that a simple sum leaves out.
• Price 12-month forwards for four fictional currencies from spot and interest rates, express them as forward points, turn them into the annual hedge carry and price a 3-month forward.
• Compare the unhedged and the hedged 12-month result of five fictional funds, first with the quick approximation, then with a hedge on the start value, and let a formula name the better result per fund.
• Build a hedge-ratio table for five fictional years of one share fund, compare the average, best and worst year per ratio and measure how much a full hedge lifted the worst year.
• Roll a fictional 1-month FCA forward twelve times, price each new forward, compute the monthly settlement in home currency, the running total for the year and the largest cash payment the hedge needed.
• Build twelve fictional monthly returns of a foreign bond fund and a foreign share fund, hedged and unhedged, measure their volatility with STDEV.S, annualise it and compare how much risk the hedge removed from each.
• Value a fictional portfolio of home and foreign funds in home currency, apply a hedge ratio per holding, and summarise gross, hedged and net exposure per currency with SUMIFS and SUMPRODUCT.
• Build a one-page scenario dashboard for one fictional foreign share fund: results unhedged, 50 % and fully hedged under five currency and rate scenarios, the best choice per scenario, worst and best cases and a chart.