In reading 27 (Schweser notes 2010), it states that currency risk of foreign stocks is half the risk of foreign stocks when measured by standard deviation. I get this. With regards to foreign bonds it states currency risk a greater by a factor of about two. Any intuition on why this is the case. TIA
Can anyone clarify this please!
Can anyone clarify this please!
What I can understand is, standard deviation of exchange rate is less with respect to stock market deviation and it is more with respect to bond market deviation.
I do not know if this is right, this is just my intuition.
Currency risk in my mind seems to be more important for Fixed Income than equities, because orf the contant coupon payments you receive. On the other hand, fixed income will tend to be less volatile than equities. Combining these two ideas, it could make sense that the std dev of currency is greater than that of foreign bonds by a factor of 2…(maybe)