Reading 10 ( currency management) example 7- Cross Hedges -

[Onda]

Reading 10 ( currency management) example 7- Cross Hedges
In this example, they want us to calculate the portfolio return and portfolio SD in domestic terms
The problem states the asset risk is 0 for both holdings, but what I don’t get is when we calculate the portfolio standard deviation, instead of using 0, they use another formula which is the return on the foreign currency asset * the currency risk to find the expected risk.

I am pretty confused about this as to why we are doing this when they explicitly told us that the asset risk is 0

[S2000magician]

Currency management - domestic risk currency

Hi guys, example 7 reading 19 from curriculum states that the expected risk of the domestic-currency return is the volatility of the exchange rate times the foreign currency asset return. I do not understand why the foreign currency asset return should be accounted for… Can somebody help?