Question
Suppose Mrs. Watanabe in Japan faces a spot exchange rate of 100JPY/USD and a 3-month forward rate of 99.17JPY/USD. c) Mr. Watanabe forecast that the
Suppose Mrs. Watanabe in Japan faces a spot exchange rate of 100JPY/USD and a 3-month forward rate of 99.17JPY/USD.
c) Mr. Watanabe forecast that the dollar may weaken relative to the yen by as much as 1%. The possible rates of changes are 0%, -1%. If these values are equally likely, what are the mean and standard deviation of the future spot exchange rate?
d) Based on the expected (mean) future spot exchange rate in question c), will Mr. Watanabe agree with Mrs. Watanabe about her strategy? Is it a positive-beta strategy to Mr. Watanabe?
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
13th edition
1439078106, 111197375X, 9781439078105, 9781111973759, 978-1439078099
