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please answer all three points (a,b and c). A Canadian firm holds an asset in France and faces the following scenario: State 1 State 2
please answer all three points (a,b and c).
A Canadian firm holds an asset in France and faces the following scenario: State 1 State 2 State 3 Probability 20% 50% 30% Spot rate $1.6/euro $1.65/euro $1.70/euro euro 2,000 euro 3,000 Price of the euro- asset euro 4,000 A) WHAT IS THE EXPECTED VALUE, E(P), OF THE INVESTMENT IN CAD? (HINT: GET THE PRO-RATED VALUE) B) WHAT IS THE VARIANCE, VAR(S), OF THE EXCHANGE RATE? (HINT: GOOGLE FORMULA FOR VARIANCE. YOUR MEAN WOULD BE THE PRORATED VALUE OF THE SPOT RATE (E(S). C) WHAT IS THE EXPOSURE (i.e. REGRESSION COEFFICIENT BETA"? (Hint: You will need to calculate COV(P/S). Recall Beta= COV(P/S) / VAR(S)Step by Step Solution
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