A board of directors is concerned about the variability of the company's various foreign currency exposures.The company treasurer prepares a report showing the standard deviations for a range of currencies over the past decade.Which of the following statements is correct?
A) Standard deviation does not provide an accurate measure of the future probability of percentage exchange rate changes.
B) Use of ten-year data smooths out periodic fluctuations, to give a more reliable future indication of exposure.
C) Exposures in currencies that have a low standard deviation against the AUD involve greater foreign exchange risk.
D) Different patterns of future currency movements are reflected in the historical data used in calculating standard deviations.

Question

Quizplus · Accepted Answer

Standard deviation is a measure of past volatility and does not necessarily indicate future probability of percentage exchange rate changes.

A Board of Directors Is Concerned About the Variability of the Company's