The standard deviation of a foreign asset in local currency is 8 5 percent, and the standard deviation of the exchange rate is s 5 5 percent a If the correlation between the asset return, in local currency, and the exchange rate movement is p 0, calculate the amount of risk that can be attributed t...

a Contribution of currency risk 1012 85 162 b Cont ...

The standard deviation of a foreign asset in local currency is = 8.5 percent, and the

Question:

The standard deviation of a foreign asset in local currency is σ = 8.5 percent, and the standard deviation of the is σs = 5.5 percent.
a. If the correlation between the asset return, in local currency, and the movement is p = 0, calculate the amount of risk that can be attributed to currency risk.
b. If the correlation between the asset return, in local currency, and the movement is p = 0.25, calculate the amount of risk that can be attributed to currency risk.
c. If the correlation between the asset return, in local currency, and the movement is p = -0.45, calculate the amount of risk that can be attributed to currency risk.
d. What is the impact of the level of correlation between the asset return in local currency and the movement on the risk of a foreign asset measured in dollars? 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...