Suppose you are a British venture capitalist holding a major stake in an e - commerce start
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Question:
Suppose you are a British venture capitalist holding a major stake in an ecommerce startup in Silicon Valley. As a British resident, you are concerned with the pound value of your US equity position. Assume that if the American economy booms in the future, your equity stake will be worth $ and the exchange rate will be $ If the American economy experiences a recession, on the other hand, your American equity stake will be worth $ and the exchange rate will be $ You assess that the American economy will experience a boom with a percent probability and a recession with a percent probability.
a Estimate your exposure to the exchange risk. Round final answer to nearest dollar.
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.
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