In 1990, a Japanese investor paid $100 million for an office building in downtown Los Angeles At the time, the exchange rate was 145 $ When the investor went to sell the building five years later, in early 1995, the exchange rate was 85 $ and the building 's value had collapsed to $50 million a Wha...

a The risk is that the value of the dollar would fall against the yen and that the dollar revenues would not keep up with the decline in the value of ...

In 1990, a Japanese investor paid $100 million for an office building in downtown Los Angeles. At

Question:

In 1990, a Japanese investor paid $100 million for an office building in downtown Los Angeles. At the time, the was ¥145/$. When the investor went to sell the building five years later, in early 1995, the was ¥85/$ and the building's value had collapsed to $50 million.
a. What exchange risk did the Japanese investor face at the time of his purchase?
b. How could the investor have hedged his risk?
c. Suppose the investor financed the building with a 10% downpayment in yen and a 90% dollar loan accumulating interest at the rate of 8% per annum.
Since this is a zero-coupon loan, the interest on it (along with the principal) is not due and payable until the building is sold. How much has the investor lost in yen terms? In dollar terms?
d. Suppose the investor financed the building with a 10% downpayment in yen and a 90% yen loan accumulating interest at the rate of 3% per annum. Since this is a zero-coupon loan, the interest on it (along with the principal) is not due and payable until the building is sold. How much has the investor lost in yen terms? In dollar terms?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...