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anbu.edu
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Postby anbu.edu » Sun Oct 06, 2013 11:44 am

It has been observed that daily returns on spot positions of the euro against the U.S. dollar are highly correlated with returns on spot holdings of the Japanese yen against the dollar. This implies that
Choose one answer.
a. When the euro strengthens against the dollar, the yen also tends to strengthen against the dollar. The two sets of returns are not necessarily equal. Correct
b. The two sets of returns tend to be almost equal. Incorrect
c. The two sets of returns tend to be almost equal inmagnitude but opposite in sign. Incorrect
d. None of the above is true. Incorrect
The correct answer is When the euro strengthens against the dollar, the yen also tends to strengthen against the dollar. The two sets of returns are not necessarily equal.
Positive correlation means that, on average, a positive movement in one variable is associated with a positive movement in the other variable. Because correlation is scale-free, this has no implication for the actual size of movements.
Incorrect


In the question they didnt mentioned anything about positive correlation.. how did they jump to that conclusion

pradeeppdy
Finance Junkie
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Postby pradeeppdy » Mon Oct 07, 2013 10:37 am

Yes you are correct, But here the positive or negative is not meaningful because correlation provides you the strengthen of directions. And the other options are incorrect here.


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