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?

Answer rating: 100% (QA)

To determine the expected exchange rate change that would result in a Sharpe ratio of 09 for the Australian equity investment we need to calculate the ... View the full answer