A U.S. firm holds an asset in Great Britain and faces the following scenario: State 1 State 2 50% State 3 Probability 25% Spot rate $2.20 /£$2.00 /£$1.80 /£ P' 25% £3,000 £2,500 £2,000 $6,600 $5,000 $3,600 where, P - Pound sterling price of the an

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A U.S. firm holds an asset in Great Britain and faces the following scenario:
State 1
State 2
State 3
Probability 25%
50%
Spot rate $2.20 /£$2.00 /£$1.80 /E
25%
£3,000 £2,500 £2,000
$6,600 $5,000 $3,600
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
Transcribed Image Text:A U.S. firm holds an asset in Great Britain and faces the following scenario: State 1 State 2 State 3 Probability 25% 50% Spot rate $2.20 /£$2.00 /£$1.80 /E 25% £3,000 £2,500 £2,000 $6,600 $5,000 $3,600 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
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