Consider two Australian firms listed on the Sydney stock exchange: Company A. Its stock return shows

Question:

Consider two Australian firms listed on the Sydney stock exchange:
• Company A. Its stock return shows a consistent negative correlation with the euro per AS exchange rate. The stock price of Company A (in Australian dollars) tends to go up when the Australian dollar depreciates relative to the euro.
• Company B. Its stock return shows a consistent positive correlation with the euro per A$ exchange rate. The stock price of Company B (in Australian dollars) tends to go down when the Australian dollar depreciates relative to the euro.
A European investor wishes to buy Australian but is unsure about whether to invest in Company A or Company B. She is afraid of a depreciation of the Australian dollar. Which of the two investments would offer some protection against a weakening Australian dollar?
Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...