The French Stock Market Has a Sigma of 20%, When

question 1

Essay

The French stock market has a sigma of 20%, when computed in euros. The U.S. stock market has a sigma of 16% in US$ and the €/US$ exchange rate has a sigma of 6%.
a. Assuming that the correlation between stock market and currency movements is zero, what is the sigma of the U.S. stock market when expressed in €.
b. Using this number, calculate the sigma, in €, of a portfolio made up of 50% of French stocks and 50% of U.S. stocks (zero-correlation between the two markets).

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Definitions:

Global Trade

International commerce that allows for the exchange of goods and services between countries, influenced by agreements, tariffs, and global economic conditions.

Canada and Mexico

Two countries in North America, each having distinct cultures, economies, and political systems, but are partners with the United States in trade agreements such as the USMCA.

Critical Thinking

The objective analysis and evaluation of an issue in order to form a judgment.

Case Law

Law established by judicial decisions in particular cases, instead of by legislative statutes or executive actions.