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

question 47

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 "exposure" (i.e.the regression coefficient beta) is
Hint: Calculate the expression $\frac { \operatorname { Cov } ( P , S ) } { \operatorname { VAR } ( S ) }$ .

• A)7,500
• B)2,500
• C)−2,500
• D)none of the options

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Definitions:

Bacteria

Microscopic single-celled organisms that can be found in various environments, some of which are beneficial, while others can cause diseases.

Inflammation

A biological response of body tissues to harmful stimuli, such as pathogens, damaged cells, or irritants, characterized by redness, heat, swelling, and pain.

Hemorrhage

is the escape of blood from a ruptured blood vessel, leading to bleeding internally or externally.

Hypothalamus

An area of the brain situated beneath the thalamus that regulates the autonomic nervous system and the function of the pituitary gland, overseeing body temperature, thirst, hunger, and various other systems that maintain internal balance.