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A US MNC tries to sell off its assets in France and retain US dollars back. Now the company is facing three scenarios, and the
A US MNC tries to sell off its assets in France and retain US dollars back. Now the company is facing three scenarios, and the euro value of its French assets and the exchange rate under each scenario is indicated in the table below.
(a) Please answer the dollar value of the companys French assets under each case.
State | Probability | Euro Value | Exchange Rate | Dollar Value |
Scenario 1 | 1/3 | 900 | $1.35/ |
|
Scenario 2 | 1/3 | 1,000 | $1.50/ |
|
Scenario 3 | 1/3 | 1,100 | $1.65/ |
|
(a. Implication of beta in Financial Hedging
We sell _________ forward at the 1-year forward rate of ________
a. $ net cash flow when the French assets is worth 980, and the exchange rate is $1.35/
b. $ net cash flow when the French assets is worth 1,000, and the exchange rate is $1.50/
c. $ net cash flow when the French assets is worth 1,070, and the exchange rate is $1.65/
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