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

question 99

Multiple Choice

A U.S.firm holds an asset in Great Britain and faces the following scenario:
$\begin{array}{l}\begin{array} { l } &\text { State 1}\\\text { Probability } & 25 \% \\\text { Spotrate } & \$ 2.20 / £ \\P^{*} & £ 1,800 \\P & \$ 4,500\end{array}\begin{array} { l } \text { State 2}&\text { State 3}\\50 \% & 25 \% \\\$ 2.00/£ & \$ 1.60 / £ \\£ 2,250 & £ 2,812.50 \\\$ 4,500 & \$ 4,500\end{array}\end{array}$
where,
P^* = Pound sterling price of the asset held by the U.S.firm
P = Dollar price of the same asset
The expected value of the investment in U.S.dollars is:

• A)$5,050
• B)$4,500
• C)$2,112.50
• D)none of the options

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Definitions:

Unlawful Conspiracies

Refers to agreements or plans made in secret, often between competitors, to perform actions that are illegal or deceptive.

Landrum-Griffin Act

A 1959 U.S. law aimed at protecting union members from corrupt practices of their own unions by establishing certain democratic procedures within unions and regulating union affairs.

Political Lobbying

The act of attempting to influence decisions made by officials in the government, often by special interest groups.

State Laws

Legal regulations established and enforced by individual states within a country.