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What is the volatility of the ftse

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Suppose that the daily volatility of the FTSE 100 stock index (measured in pounds sterling) is 1.8% and the daily volatility of the dollar/sterling exchange rate is 0.9%. Suppose further that the correlation between the FTSE 100 and the dollar/sterling exchange rate is 0.4.

a. What is the volatility of the FTSE 100 when it is translated to U.S. dollars? Assume that the dollar/sterling exchange rate is expressed as the number of U.S. dollars per pound sterling.

b. Suppose that the correlation between the S&P 500 Index (measured in dollars) and the FTSE 100 Index (measured in sterling) is 0.7, the correlation between the S&P 500 index (measured in dollars) and the dollar-sterling the exchange rate is 0.3, and the daily volatility of the S&P 500 Index is 1.6%. What is the correlation between the S&P 500 Index (measured in dollars) and the FTSE 100 Index when it is translated to dollars?

Reference no: EM132998862

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