Given there is equal probability of 1.25 $/euro or 1.60 $/euro. A U.S. firm's assets in France is expected to be 150m euro and 200m euro respectively.

a. What are the expected forex rate and the expected asset value respectively from the U.S. firm's perspective?

b. What are the variance of the exchange rate, and the variance of the asset value from the U.S. firm's perspective?

c. What are the variance of the exchange rate, and the variance of the asset value from the U.S. firm's perspective?

d. If the U.S. firm hedges, what is the variance of the dollar of the hedged position? Hint: find Var(e) is the regression equation

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Lets break this down step by step a To find the expected forex rate from the US firms perspective yo... View the full answer