A Canadian pension fund is investing in a global macro hedge fund. The fund manager expects significant divergence in central bank policies and economic growth rates across developed markets. Over the next year, the manager believes the CAD will strengthen against the USD and that global bond yields will rise. Which trade combination would this manager most likely initiate based on this view?

Question: A Canadian pension fund is investing in a global macro hedge fund. The fund manager expects significant divergence in central bank policies and economic growth rates across developed markets. Over the next year, the manager believes the CAD will strengthen against the USD and that global bond yields will rise. Which trade combination would this manager most likely initiate based on this view?

Answer options:

• Long USD/CAD, Long 10-year US Treasury futures ✅ Short USD/CAD, Short 10-year US Treasury futures
• Long USD/CAD, Short 10-year US Treasury futures
• Short USD/CAD, Long 10-year US Treasury futures

Correct answer: Short USD/CAD, Short 10-year US Treasury futures

Explanation: If the manager believes the CAD will strengthen against the USD, they would 'Short USD/CAD'. If they believe global bond yields will rise, bond prices will fall, so they would 'Short 10-year US Treasury futures' to profit from falling bond prices. This forms a consistent global macro strategy.