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

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The Answer is a. If the correlation between bond market returns and exchange rate movements were equal to zero, the dollar volatility of the Japanese bond market would be <img src="https://d2lvgg3v3hfg70.cloudfront.net/TB7821/11eac6a3_5296_937c_af59_033709c2e5ff_TB7821_00.jpg" alt="a. If the correlation between bond market returns and exchange rate movements were equal to zero, the dollar volatility of the Japanese bond market would be   b. Because the actual dollar volatility is 11.35%, we conclude that the correlation between Japanese bond market returns and exchange rate movements is positive. The actual correlation is 0.30. This can be explained by the idea that a weak currency is associated with rising interest rates (and negative bond returns) to defend the currency." class="answers-bank-image d-block" rel="preload" > b. Because the actual dollar volatility is 11.35%, we conclude that the correlation between Japanese bond market returns and exchange rate movements is positive. The actual correlation is 0.30. This can be explained by the idea that a weak currency is associated with rising interest rates (and negative bond returns) to defend the currency.

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

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