Assume that the domestic volatility (standard deviation in yen) of the Japanese stock market is 18%. The volatility of the yen against the U.S. dollar is 6%.
a. What would the dollar volatility of the Japanese stock market be for a U.S. investor if the correlation between the Japanese stock market returns and exchange rate movements were zero?
b. Suppose the dollar volatility of the Japanese stock market is 18.4%, what can you conclude about the correlation between the Japanese stock market movements and exchange rate movements?

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The Answer of Assume that the domestic volatility (standard deviation in yen) of the Japanese stock market is 18%. The volatility of the yen against the U.S. dollar is 6%.
a. What would the dollar volatility of the Japanese stock market be for a U.S. investor if the correlation between the Japanese stock market returns and exchange rate movements were zero?
b. Suppose the dollar volatility of the Japanese stock market is 18.4%, what can you conclude about the correlation between the Japanese stock market movements and exchange rate movements?

Assume That the Domestic Volatility (Standard Deviation in Yen) of the Japanese