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Find an effective hedge financial hedge if a U . S . firm holds an asset in Great Britain and faces the following scenario: State
Find an effective hedge financial hedge if a US firm holds an asset in Great Britain and faces the following scenario: State State State Probability Spot rate $ $ $ P P $ $ $ P Pound sterling price of the asset held by the US firm P Dollar price of the same asset The CFO runs a regression of the form P a b times S e The regression coefficient beta is calculated as b COVPSVARS Where CovPStimes $ $times $ $ times $ $times $ $ times $ $times $ $ CovPS CovPS b The variance of the exchange rate is calculated as EStimes $times $times $ $ $ $ $ VARS$ $$ $$ $ The expected value of the investment in US dollars is: EPtimes $times $times $ $ Suppose that you implement your hedge at F$ $ Your cash flows in state and respectively will be Multiple Choice none of the options $ $ $ $ $ $ $ $ $
Find an effective hedge financial hedge if a US firm holds an asset in Great Britain and faces the following scenario:
State State State
Probability
Spot rate $ $ $
P
P $ $ $
P Pound sterling price of the asset held by the US firm
P Dollar price of the same asset
The CFO runs a regression of the form P a b times S e
The regression coefficient beta is calculated as b COVPSVARS
Where
CovPStimes $ $times $ $
times $ $times $ $
times $ $times $ $
CovPS
CovPS
b
The variance of the exchange rate is calculated as
EStimes $times $times $
$ $ $
$
VARS$ $$ $$ $
The expected value of the investment in US dollars is:
EPtimes $times $times $ $
Suppose that you implement your hedge at F$ $ Your cash flows in state and respectively will be
Multiple Choice
none of the options
$ $ $
$ $ $
$ $ $
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