Assume that the domestic volatility (standard deviation) of the German stock market (in euros) is 18.2 percent.

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Assume that the domestic volatility (standard deviation) of the German stock market (in euros) is 18.2 percent. The volatility of the euro against the U.S. dollar is 11.7 percent.
a. What would the dollar volatility of the German stock market be for a U.S. investor if the correlation between the stock market returns and exchange rate movements were zero?
b. Suppose the dollar volatility of the German stock market is 20.1 percent. What can you conclude about the correlation between German stock market movements and exchange rate movements?
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
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Global Investments

ISBN: 978-0321527707

6th edition

Authors: Bruno Solnik, Dennis McLeavey

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