(a)Please answer the dollar value of the company's French assets under each case.

State

Probability

Euro Value

Exchange Rate 1

Dollar Value

Scenario 1

1/3

900

$1.35/

900*1.35=1215

Scenario 2

1/3

1,000

$1.50/

1000*1.50=1500

Scenario 3

1/3

1,100

$1.65/

1.100*1.65=1815

(b)Please solve for the economic exposure of the company's French assets. In other words, how does the change of exchange rate affect the dollar value of the assets. To answer this question, you need to build a model

Dollar value of French Assets =alpha + beta* Exchange Rate

And then solve for beta.

Hint: use the statistics function of your calculator. Choose linear regression for calculation.

SP= 1/3*(1215+1500+1815)=1510

SP=1/3*(1.35/(euro)+1.50/(euro)+1.65/(euro))= $1.50/euro

Variance and covariance:

VAR=1/3*(1.35/(euro)-$1.50/(euro))^2 + (1.50 -1.50)^2 + (1.65-1.50)^2= 0.015

COV (sp s) = 1/3 *1215-1510*1.35/(euro)- $1.50/(euro)= 30

Exposure coefficient:

B= COV(P,S/Var)=30/.015 = 2000 euros

(c)Implication

For hedging the risk, the company should sell _________ 1- year forward at $1.50/. Please calculate:

a.$ net cash flow when the French assets is worth 980, if the exchange rate is $1.35/ one year later

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/

can someoene explain to me how to solve part C i already solved the first half, thank you