Nicole is considering to invest in one of the two shares with the following information below. Which share should she invest?

 

The current exchange rate between Australian dollar and the US dollar, AUD/USD, is 0.7719, while the exchange rate between New Zealand dollar and the US dollar, NZD/USD is 0.7205. If AUD appreciates one percent against USD, and NZD depreciates one percent against USD, what is the exchange rate between NZD/AUD?

Iron ore is the largest commodity export for Australia but is priced in the US dollars. During economic upturns (or economic downturns), the demand for iron ore increases (or decreases) which in turn drives its price, quoted in the US dollars, up (or down). The Australian dollar also appreciates (or depreciates) against the US dollar as the demand increases (or decreases). Therefore, the correlation between the iron ore price in US dollar and the exchange rate is positive. Does this positive correlation increase or decrease the movement of iron ore price in Australian dollar relative to that in the US dollar? Explain. 

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Probability 0.3 0.4 0.3 Share A Return 11% 15% 19% Probability 0.1 0.3 0.4 Share B 0.2 Return 4% 6% 10% 15% Probability 0.3 0.4 0.3 Share A Return 11% 15% 19% Probability 0.1 0.3 0.4 Share B 0.2 Return 4% 6% 10% 15%

Answer rating: 100% (QA)

Stepbystep explanation a Return of stock A 0311 0415 0319 330 6 570 15 Return of stock B 014 036 041... View the full answer