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Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,002,120, and the exchange rate will be $1.4/. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $502,400, and the exchange rate will be $1.6/. You assess that the American economy will experience a boom with a 60 percent probability and a recession with a 40 percent probability. a. Estimate your exposure to the exchange risk. (Round final answer to nearest dollar.) Exposure b. Compute the variance of the pound value of your American equity position that is attributable to the exchange rate uncertainty. (Round final answer to nearest dollar.) Variance Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,002,120, and the exchange rate will be $1.4/. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $502,400, and the exchange rate will be $1.6/. You assess that the American economy will experience a boom with a 60 percent probability and a recession with a 40 percent probability. a. Estimate your exposure to the exchange risk. (Round final answer to nearest dollar.) Exposure b. Compute the variance of the pound value of your American equity position that is attributable to the exchange rate uncertainty. (Round final answer to nearest dollar.) Variance
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Answer rating: 100% (QA)
1 Given Data Boom Scenario Equity stake worth 1002120 Exchange rate 14 Recession Scenario Equity stake worth 502400 Exchange rate 16 Probabilities Boo... View the full answer
Related Book For
International Financial Management
ISBN: 978-0078034657
6th Edition
Authors: Cheol S. Eun, Bruce G.Resnick
Posted Date:
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