What is the volatility of the ft-se 100

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Suppose that the daily volatility of the FT-SE 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 FT-SE 100 and the dollar/sterling exchange rate is 0.4. What is the volatility of the FT-SE 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. (Hint: When Z = XY, the percentage daily change in T. is approximately equal to the percentage daily change in X plus the percentage daily change in Y.)

Reference no: EM131406467

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