Calculate the variance of the dollar price of this asset if, Ask an Expert

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problem: A United State firm holds an asset in France and faces the following scenario


	State 1	State 2	State 3	State 4

Probability	25%	25%	25%	25%

Spot rate	$1.20/€	$1.10/€	$1.00/€	$0.90/€

P^*	1500	1400	1300	1200

P	$1,800	$1,540	$1,300	$1,080

In the above table, P^* is the euro price of the asset held by the United State firm and P is the dollar price of the asset.

[A] find out the exchange exposure faced by the United State firm.

[B] find out the variance of the dollar price of this asset if the United State firm remains unhedged against this exposure?

[C] If the United State firm hedges against this exposure using the forward contract, determine the variance of the dollar value of the hedged position?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M920400

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