Question: The expected AUD return on an Australian equity is 12%, and its volatility is 20%. The volatility of the NZD/AUD exchange rate is 15%. Suppose

The expected AUD return on an Australian equity is 12%, and its volatility is 20%. The volatility of the NZD/AUD exchange rate is 15%. Suppose the correlation between the Australian equity return in AUD and the exchange rate change is 0.5. Assume that the risk-free rate is 2% for a New Zealand investor. What expected exchange rate change would you expect if the Australian equity investment is to have a Sharpe ratio of 0.9?

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