Global macro stategy

Discussion in 'P2.T8. Investment Management (15%)' started by Leli, May 15, 2012.

  1. Leli

    Leli Member


    I don't really understand wording & computation in the global macro strategy example (page 75 from study notes).
    It's written :
    long position : FNIPS provides real yield
    short position FNB provides nominal yield (i though it was just the coupon, but in the core reading from stowell, we can read that "ENB is a nominal note so its yield is nominal yield = real yield + expected inflation" (error in the book?))

    Then calculation of gain/losses
    FNIPS using Real yield + inflation (i thought it was "real yield" only).
    and for FNB, you use just coupon.

    Maybe i just need better definitions for real yield and nominal yield...
    For me : real yield = nominal + inflation (or - deflation)
    and nominal = return from investment (coupon)

    Thanks a lot,

  2. Ankur S

    Ankur S Member

    FNIPS is an Inflation protected security, so you will get real yield + inflation return as well (which makes you protected)

    With normal (or nominal) fixed-income investments, investors will bear inflation risk (returns could be eroded by inflation)...which is our FNB Bond in this case which pays nominal return

    I hope i have it right :)

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