A US MNC tries to sell off its assets in France and retain US dollars back....

 

Transcribed Image Text:

A US MNC tries to sell off its assets in France and retain US dollars back. Now the company is facing three scenarios, and the euro value of its French assets and the exchange rate under each scenario is indicated in the table below. (a) Please answer the dollar value of the company's French assets under each case. (b) State Scenario 1 Scenario 2 Scenario 3 Probability 1/3 1/3 1/3 Euro Value €1900 €2.000 €2.100 Exchange Rate Dollar Value $1.35/€ $1.50/€ $1.65/€ Please solve for the economic exposure of the company's French assets. In other words, how does the change of exchange rate affect the dollar value of the assets. To answer this question, you need to build a model Dollar value of French Assets = alpha + beta* Exchange Rate And then solve for beta. Hint: use the statistics function of your calculator. Choose linear regression for calculation. (c) Implication For hedging the risk, the company should sell € 1-year forward at $1.50/€. Please calculate: a. $ net cash flow when the French assets is worth €980, if the exchange rate is $1.35/€ one year later b. $ net cash flow when the French assets is worth €1,000, and the exchange rate is $1.50/€ c. $ net cash flow when the French assets is worth €1,070, and the exchange rate is $1.65/€ A US MNC tries to sell off its assets in France and retain US dollars back. Now the company is facing three scenarios, and the euro value of its French assets and the exchange rate under each scenario is indicated in the table below. (a) Please answer the dollar value of the company's French assets under each case. (b) State Scenario 1 Scenario 2 Scenario 3 Probability 1/3 1/3 1/3 Euro Value €1900 €2.000 €2.100 Exchange Rate Dollar Value $1.35/€ $1.50/€ $1.65/€ Please solve for the economic exposure of the company's French assets. In other words, how does the change of exchange rate affect the dollar value of the assets. To answer this question, you need to build a model Dollar value of French Assets = alpha + beta* Exchange Rate And then solve for beta. Hint: use the statistics function of your calculator. Choose linear regression for calculation. (c) Implication For hedging the risk, the company should sell € 1-year forward at $1.50/€. Please calculate: a. $ net cash flow when the French assets is worth €980, if the exchange rate is $1.35/€ one year later b. $ net cash flow when the French assets is worth €1,000, and the exchange rate is $1.50/€ c. $ net cash flow when the French assets is worth €1,070, and the exchange rate is $1.65/€

Answer rating: 100% (QA)

A Dollar value table dollar value is derived by multiplyi... View the full answer