Using the data presented in Table 1, assume the possibility of exchange risk in your investment decisions. Table 2 presents possible depreciation rates along with their probabilities occurrence.

a) Which country has the largest expected depreciation rate?

b) Using expected depreciation rates calculated using table 2 and assuming an investment of USD 20 million, maturity 1 year; and assuming investments' returns estimated with table 1, Exchange rate at time zero of 3.00 Country 1 currency/USD and 1.30 Country 2 currency unit/USD, in which country are you more likely to invest in?

c)When examining Table 3 you realize that the following information was not adequately considered: SEE TABLE 3 please.

How do you think this additional information can modify the estimated probabilities from table 2? Explain and provide your own educated probabilities using your knowledge about the impact these variables in the expected behavior of governments (monetary policies) when facing dollarized economies. Enter answer your own probabilities in Table 4.

Relevant information:

Table 1 Probabilities Country 1 (C1) Country 2 (C2) 0.5 9% 7% 0.3 12% 13% 0.2 15% 17% 0Table 3 Country 1 Country 2 (C1) (C2) Dollarization (USD-denominated loans/total loans) 70% 30% Exchange rate pass through (imported goods/total 50% 20% goods consumed in each country)\f\f