A USFirm Holds an Asset in Israel and Faces the Following

question 61

Multiple Choice

A U.S.firm holds an asset in Israel and faces the following scenario:
$\begin{array}{l}\begin{array} { l } &\text { State 1}\\\text { Probability } & 25 \% \\\text { Spotrate } & \$ 0.30 / LS \\P^{*} & LS 2,000 \\P & \$ 600\end{array}\begin{array} { l } \text { State 2}&\text { State 3}\\50 \% & 25 \% \\\$ 0.20/LS & \$ 0.15 / LS \\£ 5,000 & £ 3,000 \\\$ 1,000 & \$ 4,50\end{array}\end{array}$
where,
P^* = Israeli shekel (IS) price of the asset held by the U.S.firm
P = Dollar price of the same asset
Which of the following conclusions are correct?

• A)Most of the volatility of the dollar value of the Israeli asset can be removed by hedging exchange risk because b²[Var(S)] and VAR(e)are 236,717 ($)² and 493,751 ($)² respectively.
• B)Most of the volatility of the dollar value of the Israeli asset cannot be removed by hedging exchange risk because b²[Var(S)] and VAR(e)are 236,717 ($)² and 493,751 ($)² respectively.
• C)Most of the volatility of the dollar value of the Israeli asset cannot be removed by hedging exchange risk because b²[Var(S)] and VAR(e)are 8.22 ($)² and 59,211 ($)²,respectively.
• D)Most of the volatility of the dollar value of the Israeli asset can be removed by hedging exchange risk because b²[Var(S)] and VAR(e)are 8.22 ($)² and 59,211 ($)² respectively.

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Definitions:

Price Strategy

An approach determined by a company to set the cost of its products or services, aimed at achieving specific business objectives, such as maximizing profitability, capturing market share, or discouraging new entrants.

Elements Of Promotion

Components used in marketing to communicate a product's value to consumers, typically including advertising, sales promotion, direct marketing, personal selling, and public relations.

Brand

A name, design, symbol, or any other feature that identifies one seller's goods or service as distinct from those of other sellers.

Tactical Greening

A type of environmental marketing activity that involves implementing limited change within a single area of the organization.