Question

A U.S. firm holds an asset in Israel and faces the following scenario in Israeli Shaekel...

A U.S. firm holds an asset in Israel and faces the following scenario in Israeli Shaekel (IS): Probability Case 1 Case 2 Case 3 25% 50% 25% Spot Price ($/IS)0.3000 ($/IS)0.2000 ($/IS)0.1500 Israeli Shaekel price of asset held by U.S. Firm IS2000 IS5000 IS3000 U.S. Dollar price of the same asset $600 $1000 $450 What is the Exposure (Regression Coefficient Beta) Coefficient? Hint: Calculate the expression : covariance of the U.S. dollar price of the Israeli asset divided by the variance of the ($/Israeli Shaekel) exchange rate.

a)-52.6316

b) 1,289.80

c)12,898.00

d) None of the above

Homework Answers

Answer #1

Option A -52.6316

1.Computation of Exposure Coefficient:

a. Cov(P,S) = 0.25 × ($600 – $762.50) × ($0.30 – $0.2125) + 0.50× ($1000 – $762.50) × ($0.20 – $0.2125) + 0.25($450 – $762.50)*($0.15 – $0.2125)= -3.5547 - 1.4844 + 4.8828

Cov(P,S)= -0.1563

b. VAR(S) = 0.25($0.30 – $0.2125)2+ 0.50($0.20 – $0.2125)2+ 0.25($0.15 – $0.2125)2= 0.001914 + 0.000078 + 0.000976= 0.002968

Exposure Coefficient = Cov(P,S) / Variance(P) = -0.1563 / 0.002968

Exposure Coefficient = Cov(P,S) / Variance(P) = -52.6316

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A U.S. firm holds an asset in Israel and faces the following scenario in Israeli Shaekel...
A U.S. firm holds an asset in Israel and faces the following scenario in Israeli Shaekel (IS): Probability                                                                                          Case 1                   Case 2                  Case 3                                                                                                                 25%                        50% 25% Spot Price                                                                                            ($/IS)0.3000        ($/IS)0.2000       ($/IS)0.1500 Israeli Shaekel price of asset held by U.S. Firm    IS2000                   IS5000                   IS3000   U.S. Dollar price of the same asset   $600     $1000                    $450 What is the Exposure (Regression Coefficient Beta) Coefficient? Hint: Calculate the expression : covariance of the U.S. dollar price of the Israeli asset divided by the variance of the ($/Israeli Shaekel) exchange rate.
14. Jacobee Inc., a U.S. firm, holds an asset in Bulgaria and faces the following scenario:...
14. Jacobee Inc., a U.S. firm, holds an asset in Bulgaria and faces the following scenario: State 1 State 2 State 3 Probability 25% 50% 25% Spot rate $0.30 /BL $0.20 /BL $0.15 /BL P* BL 2,000 BL 5,000 BL 3,000 P $600 $1,000 $450 where, P* = Bulgarian Lev (BL) price of the asset held by the U.S. firm P = Dollar price of the same asset The expected value of the investment in U.S. dollars is:        $2,083.33...
if a U.S. firm holds an asset in Great Britain and faces the following scenario: State:...
if a U.S. firm holds an asset in Great Britain and faces the following scenario: State: Probability State 1: 25% State 2: 50% State 3: 25% Spot Rate $2.20/£ $2.00/£ $1.80/£ P* £3,000 £2,500 £2,000 P $6,600 $5,000 $3,600 P* = Pound sterling price of the asset held by the U.S. firm P = Dollar price of the same asset The CFO runs a regression of the form P=a+b×S+e The regression coefficient is estimated as b=7500 Suppose the firm Sells...
A U.S. firm holds an asset in Great Britain and faces the following scenario: Probability State...
A U.S. firm holds an asset in Great Britain and faces the following scenario: Probability State 1 (25%) State 2 (50%) State 3 (25%) Spot rate $2.20/pound $2.00/pound $1.80/pound P* 2,000 pounds 2,500 pounds 3,000 pounds P $4,400 $5000 $5,400 P* = the pound price of the asset held by the U.S. firm P = the dollar price of the same asset Given the data provided, the expected value of the investment in U.S. dollars is _____ . (HINT: Use...
A U.S. firm holds an asset in France and faces the following scenarios: State Probability FX...
A U.S. firm holds an asset in France and faces the following scenarios: State Probability FX Asset value 1 0.15 $1.30/€ €2,000 2 0.25 $1.20/€ €2,500 3 0.60 $1.10/€ €3,000 The standard deviation of the dollar price of this asset, if the U.S. firm remains unhedged against this exposure is closest to Select one: a. $352 b. $252 c. $452 d. $552
A U.S. firm holds an asset in France and faces the following scenarios: State Probability FX...
A U.S. firm holds an asset in France and faces the following scenarios: State Probability FX Asset value 1 0.15 $1.30/€ €2,000 2 0.25 $1.20/€ €2,500 3 0.60 $1.10/€ €3,000 The exchange exposure β faced by the U.S. firm is closest to Select one: a. –$4,400 b. $4,400 c. –$5,400 d. –$3,400
A U.S. firm has a subsidiary in Great Britain and faces the following scenario: Probability Spot...
A U.S. firm has a subsidiary in Great Britain and faces the following scenario: Probability Spot Rate C* C Proceeds from Fwd. contract Dollar value of hedged position State 1 40% $2.50/£ £2,000 State 2 60% $2.30/£ £2,500 a. Fill in the dollar value of the cash flow (C) in the table above. b. Estimate your exposure to exchange rate risk (b). c. Compute the proceeds from the forward contract if you hedge this exposure. Assume the forward rate is...
Delta airlines case study Global strategy. Describe the current global strategy and provide evidence about how...
Delta airlines case study Global strategy. Describe the current global strategy and provide evidence about how the firms resources incompetencies support the given pressures regarding costs and local responsiveness. Describe entry modes have they usually used, and whether they are appropriate for the given strategy. Any key issues in their global strategy? casestudy: Atlanta, June 17, 2014. Sea of Delta employees and their families swarmed between food trucks, amusement park booths, and entertainment venues that were scattered throughout what would...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT