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Suppose you are An Australian venture capitalist holding a major stake in an e-commerce start-up in the UK. As an Australian resident, you are concerned
Suppose you are An Australian venture capitalist holding a major stake in an e-commerce start-up in the UK. As an Australian resident, you are concerned with the AUD value of your UK equity position. As an economist, you estimate 3 scenarios for the future, as described in the table below: Scenario Probability Forecast exchange rate (A$/) Forecast asset value in ) 1 0.4 1.3100 1,000,000 2 0.3 1.3085 700,000 3 0.3 1.3051 500,000 (a) Estimate your exposure to the exchange risk.[6 MARKS] (b) How would you hedge this exposure? Suppose the forward rate is 1.3090 A$/. Calculate the AUD value of the hedged portfolio under each of the scenarios above [4 MARKS] IN YOUR CALCULATION, KEEP 4 DECIMAL POINTS FOR THE EXCHANGE RATES, AND NO DECIMAL POINTS FOR CURRENCY NUMBERS. Suppose you are An Australian venture capitalist holding a major stake in an e-commerce start-up in the UK. As an Australian resident, you are concerned with the AUD value of your UK equity position. As an economist, you estimate 3 scenarios for the future, as described in the table below: Scenario Probability Forecast exchange rate (A$/) Forecast asset value in ) 1 0.4 1.3100 1,000,000 2 0.3 1.3085 700,000 3 0.3 1.3051 500,000 (a) Estimate your exposure to the exchange risk.[6 MARKS] (b) How would you hedge this exposure? Suppose the forward rate is 1.3090 A$/. Calculate the AUD value of the hedged portfolio under each of the scenarios above [4 MARKS] IN YOUR CALCULATION, KEEP 4 DECIMAL POINTS FOR THE EXCHANGE RATES, AND NO DECIMAL POINTS FOR CURRENCY NUMBERS
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