Incantieri is planning to buy manufacturing facilities in Florida to ensure that production of cruise ships will be located closer to the U.S. clients and potential cruise lines. Incantieri considers the possibility of selling these facilities in one year. As an Italian resident, the company is concerned with the euro value of the property.

You have researched and provided your client with the following results:

• If the U.S. economy experiences growth in the future, the property will be worth $50,000,000 and the exchange course of 1 dollar will be 0.83 euro.
• If the U.S. economy slows down, the property will be worth $40,000,000, but the U.S. dollar will be stronger and worth 0.89 euro.
• The probability of the U.S. economy to experience growth is 40% while a slow-down will happen with a 60% probability.

1. Estimate your exposure b to the exchange risk.
2. Compute the variance of the dollar value of your property that is attributable to the exchange rate uncertainty.
3. Discuss which strategies you could suggest to your client to manage economic exposure.