B the part of the variability of the dollar value of

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B) the part of the variability of the dollar value of the asset that is related to random changes in the exchange rate. C) the residual part of the dollar value variability that is independent of exchange rate movements. D) none of the options C Q32) On the basis of regression equation P = a + b × S + e , we can decompose the variability of the dollar value of the asset, VAR( P ), into two separate components: VAR( P ) = b 2 × VAR( S ) + VAR( e ). The second term in the right-hand side of the equation, VAR( e ) represents A) the part of the variability of the dollar value of the asset that is related to random changes in the exchange rate. B) the part of the variability of the dollar value of the asset that is related to random changes in the exchange rate, as well as the residual part of the dollar value variability that is independent of exchange rate movements. C) the residual part of the dollar value variability that is independent of exchange rate movements. D) none of the options C Q33) Consider a U.S. MNC who owns a foreign asset. If the foreign currency value of the asset is inversely related to changes in the dollar–foreign currency exchange rate, A) the dollar value variability is independent of exchange rate movements. B) the company has a built-in hedge. C) the company has a built-in hedge and the dollar value variability that is independent of exchange rate movements. D) none of the options C Q34) A U.S. firm holds an asset in Great Britain and faces the following scenario: State 1 State 2 State 3 Probability 25% 50% 25% Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£ P * £ 2,000 £ 2,500 £ 3,000 P $ 4,400 $ 5,000 $ 5,400 where, P * = Pound sterling price of the asset held by the U.S. firm
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P = Dollar price of the same asset The expected value of the investment in U.S. dollars is A) $3,700. B) $2,112.50. C) $4,950. D) none of the options B Q35) A U.S. firm holds an asset in Great Britain and faces the following scenario: State 1 State 2 State 3 Probability 25% 50% 25% Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£ P * £ 3,000 £ 2,500 £ 2,000 P $ 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 Which of the following would be an effective hedge? A) Buy £2,500 forward at the 1-year forward rate, F 1 ($/£), that prevails at time zero. B) Sell £7,500 forward at the 1-year forward rate, F 1 ($/£), that prevails at time zero. C) Sell £25,000 forward at the 1-year forward rate, F 1 ($/£), that prevails at time zero. D) none of the options B Q36) A U.S. firm holds an asset in Great Britain and faces the following scenario: State 1 State 2 State 3 Probability 25% 50% 25% Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£ P * £ 3,000 £ 2,500 £ 2,000 P $ 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 A) 2,500 B) −2,500 C) 7,500 D) none of the options D Q37) A U.S. firm holds an asset in Great Britain and faces the following scenario:
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State 1 State 2 State 3 Probability 25% 50% 25% Spot rate $ 2.50/£ $ 2.00/£ $ 1.60/£ P * £ 1,800 £ 2,250 £ 2,812.50 P $ 4,500 $ 4,500 $ 4,500 where, P * = Pound sterling price of the asset held by the U.S. firm P = Dollar price of the same asset Which of the following would be an effective hedge?
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