Question

$762.50 $6,250.00 $6,562.50 |

0.0049 0.0039 0.002969 |

?52.6316 13,657.2781 -187.2583 |

Answer #1

14)

The expected value is given by:-

= P1 * Probability + P2 * Prbability + P3 * Probability

= 600 * 0.25 + 1000 * 0.5 + 450 * 0.25

= 150 + 500 + 112.5

= $762.5

Now for calculating variance we will first calculate mean of exchange rate:-

M = (0.3 + 0.2 + 0.15)/3 = 0.2167

Now varience is given by

So

This is the varience

Now

The regression coefficient is defined as the ratio of the covariance between the asset value and the exchange rate, to the variance of the spot rate. Mathematically it is defined as:

b = Cov (P,S) ÷ Var (S)

here we know the varience of spot rate from above calculation.

and

So

b = 1.11 / 0.003889

b = 285.7061

Please note that varience and covarience are calculated considering population mean.

**Thank You!!**

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 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...

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 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
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

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