Here is the Question
Sorry Can’t Copy paste but basically question asks
Stock Market return from French investor perspective is 12% SD 29%
RF rate
French 2% Australia 5%
SD of EUR is 14%
Expected change in value of EUR is +2%
Correlation of French Stocks with EUR is .3
Question states
Compute the approximate return and SD of a currency HEDGED invesment in the french stocks. I said that it would be 29% because the currency exposure is hedged….. The answer key says to use the variance equation (you all know the one) to compute the SD. Am i wrong here? I thought if the currency exposure is hedged than the only volatility comes from the asset, maybe they meant unhedged?
By the way this is from the perspective of an Australian investor