A U.S. firm holds an asset in Great Britain and faces the following scenario: 6 CONTINUES...
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A U.S. firm holds an asset in Great Britain and faces the following scenario: 6 CONTINUES NEXT PAGE State 1 Probability Sport Rate 30% State 2 50% State 3 20% P* $1.3/ 2500 $1.2/ 3500 $1.1/ 3200 where, P = Pound sterling price of the asset held by the U.S. firm Required a) What is the expected value of the investment in U.S. dollars? [10 marks] b) Calculate the variance of the exchange rate, i.e. Var(S). (Keep all decimals) [5 marks] c) Calculate the covariance between the dollar value of the asset and the exchange rate, i.e. Cov(P,S). d) Estimate your exposure to the exchange risk. [10 marks] A U.S. firm holds an asset in Great Britain and faces the following scenario: 6 CONTINUES NEXT PAGE State 1 Probability Sport Rate 30% State 2 50% State 3 20% P* $1.3/ 2500 $1.2/ 3500 $1.1/ 3200 where, P = Pound sterling price of the asset held by the U.S. firm Required a) What is the expected value of the investment in U.S. dollars? [10 marks] b) Calculate the variance of the exchange rate, i.e. Var(S). (Keep all decimals) [5 marks] c) Calculate the covariance between the dollar value of the asset and the exchange rate, i.e. Cov(P,S). d) Estimate your exposure to the exchange risk. [10 marks]
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Related Book For
International Financial Management
ISBN: 978-0078034657
6th Edition
Authors: Cheol S. Eun, Bruce G.Resnick
Posted Date:
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