Although the Managing Economic Exposure topic is straight forward conceptually, the quantitative part requires careful execution of a series of calculations. We need to make sure that we can successfully calculate variance, covariance, economic exposure coefficient, and standard deviation. Also, we need to make sure that we understand the meaning of the economic exposure coefficient and the standard deviation.

Make sure your submitted work shows your calculations step by step for part a and part c. Also make sure that you explain part b and part c clearly in your own words.

A U.S. firm holds an asset in Italy and faces the following scenario:

	State 1		State 2		State 3
Probability	25%		50%		25%
Spot rate	$	2.50	/		$	2.00	/		$	1.60	/
P		1,800				2,250				2,812.50

1. Calculate the economic exposure coefficient.
2. Explain what the sign of the covariance means.
3. Calculate the standard deviation of the exchange rate and explain what that number means.

PLEASE SHOW TABLES IN EXCEL!!!!!!!!!!!!!!!!!