Assume That the Domestic Volatility (Standard Deviation in Yen) of the Japanese

question 10

Essay

Assume that the domestic volatility (standard deviation in yen) of the Japanese stock market is 18%. The volatility of the yen against the U.S. dollar is 6%.
a. What would the dollar volatility of the Japanese stock market be for a U.S. investor if the correlation between the Japanese stock market returns and exchange rate movements were zero?
b. Suppose the dollar volatility of the Japanese stock market is 18.4%, what can you conclude about the correlation between the Japanese stock market movements and exchange rate movements?

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