Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,000,000, and the exchange rate will be $1.40/£. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $500,000, and the exchange rate will be $1.60/£. You assess that the American economy will experience a boom with a 70 percent probability and a recession with a 30 percent probability. Which of the following would effectively hedge your exchange risk exposure? (Pick the closest number for your answer.] Buy £3,445,231 forward O Sell £4,511.976 forward O Buy $3,445,231 forward Sell $4,511.976 forward.

Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,000,000, and the exchange rate will be $1.40/£. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $500,000, and the exchange rate will be $1.60/£. You assess that the American economy will experience a boom with a 70 percent probability and a recession with a 30 percent probability. Which of the following would effectively hedge your exchange risk exposure? (Pick the closest number for your answer.] Buy £3,445,231 forward O Sell £4,511.976 forward O Buy $3,445,231 forward Sell $4,511.976 forward.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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