The Glover Scholastic Aid Foundation has received a €20 million global government bond portfolio from a Greek donor. This bond portfolio will be held in euros and managed separately from Glover's existing U.S. dollar-denominated assets. Although the bond portfolio is currently unhedged, the portfolio manager, Raine Sofia, is investigating various alternatives to hedge the currency risk of the portfolio. The bond portfolio's current allocation and the relevant country performance data are given in Exhibits 1 and 2. Historical correlations for the currencies being considered by Sofia are given in Exhibit 3. Sofia expects that future returns and correlations will be approximately equal to those given in Exhibits 2 and 3. Exhibit 1. Glover Scholastic Aid Foundation Current Allocation Global Government Bond Portfolio Country Greece A B C D Allocation (%) Maturity (years) 30 5 35 5 10 10 10 5 15 10 Exhibit 2. Country Performance Data (in local currency) 5-year Excess Country Cash Return Bond Return (%) 10-year Excess Currency Return Bond Return (%) Unhedged (%) Liquidity of 90-day Currency Forward Contracts Greece 2.0 1.5 2.0 Good A 1.0 2.0 3.0 -4.0 Good B 4.0 0.5 1.0 2.0 Fair C 3.0 1.0 2.0 -2.0 Fair D 2.6 1.4 2.4 -3.0 Good Required: Calculate the expected total annual return (euro-based) of the current bond portfolio if Sofia decides to leave the currency risk unhedged. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Expected total annual return %

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Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.