A USfirm Holds an Asset in Great Britain and Faces the the Following

question 89

Multiple Choice

A U.S.firm holds an asset in Great Britain and faces the following scenario:
$\begin{array}{l}\begin{array} { l } &\text { State 1}\\\text { Probability } & 25 \% \\\text { Spotrate } & \$ 2.20 / £ \\P^{*} & £ 2,000 \\P & \$ 4,400\end{array}\begin{array} { l } \text { State 2}&\text { State 3}\\50 \% & 25 \% \\\$ 2.00/£ & \$ 1.80 / £\\£ 2,500 & £ 3,000 \\\$ 5,000 & \$ 5,400\end{array}\end{array}$
P^* = Pound sterling price of the asset held by the U.S.firm
P = Dollar price of the same asset
The "exposure" (i.e.the regression coefficient beta) is
Hint: Calculate the expression $\frac { \operatorname { Cov } ( P , S ) } { \operatorname { VAR } ( S ) }$ .

• A)−25,000
• B)2,500
• C)−2,500
• D)none of the options

---

Definitions:

New Markets

These refer to unexplored or less saturated areas or sectors where businesses can expand their presence to increase sales, reach new customers, or introduce innovations.

Same Market

Refers to a situation where companies or products target the same customer segment or geographic area.

BCG Business Portfolio Analysis

A strategic planning tool used by companies to categorize their business units or products based on market growth rate and market share relative to the largest competitor.

Market Growth Rate

The increase in the size of a specific market over a set period, usually expressed as a percentage.