TheDooner64
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- Jun 18, 2026
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This question is in reference to CFAI book 5 page 270, example 8
The solution to the problem says to multiple the currency risk (i.e. standard deviation of the FX portion) by the risk-free rate in order to calculate the expected risk for the domestic-currency return. The asset risk is 0 in this case since it’s about treasury bills.
Can anyone explain why this calculation requires the extra step of multiplying the currency risk by the risk-free rate? I have not seen this step in any other instances of standard deviation calculations.
Thanks
The solution to the problem says to multiple the currency risk (i.e. standard deviation of the FX portion) by the risk-free rate in order to calculate the expected risk for the domestic-currency return. The asset risk is 0 in this case since it’s about treasury bills.
Can anyone explain why this calculation requires the extra step of multiplying the currency risk by the risk-free rate? I have not seen this step in any other instances of standard deviation calculations.
Thanks