Suppose that you hold a piece of land in the City of London that you may want to sell in one year. As a U$.$S$.$ resident, you are concerned with the dollar value of the land. Assume that, if the British economy booms in the future, the land will be worth $2,000$ and one British pound will be worth $$1\mathrm{.}40.$ If the British economy slows down, on the other hand, the land will be worth less, i$.$e$.,1,500,$ but the pound will be stronger, i$.$e$.,$ $$\frac{1\mathrm{.}50}{}.$ You feel that the British economy will experience a boom with a $60\%$ probability and a slow$-$down with a $40\%$ probability.

$($a$)$ Estimate your exposure $b$ to the exchange risk.

$($b$)$ Compute the variance of the dollar value of your property that is attributable to the exchange rate uncertainty.

$($c$)$ Discuss how you can hedge your exchange risk exposure and also examine the consequences of hedging.