Problem

Now suppose the investor in Problem 5 also sells forward £5,000 at a forward exchange ra...

Now suppose the investor in Problem 5 also sells forward £5,000 at a forward exchange rate of $2.10/£.

a. Recalculate the dollar-denominated returns for each scenario.

b. What happens to the standard deviation of the dollar-denominated return? Compare it to both its old value and the standard deviation of the pound-denominated return.

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Solutions For Problems in Chapter 19