Compute the variance of the dollar value of your

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Compute the variance of the dollar value of your property that is attributable to exchange rate uncertainty.Answer: The expression "b2VAR(S)" represents the volatility of the dollar value of the asset thatis related to random changes in the exchange rate. 15,528 = b2VAR(S)From the results to earlier questions we have the values:VAR(S) = 0.0534150b= 539.17Therefore, using the Equation 9.2, we obtainV(P) = VAR(S) + VAR(e)498,960 = 15,528 + VAR(e)VAR(e) = 498,960 − 15,528 = 483,432The expression "VAR(e)" is the volatility in the dollar value of the asset that is independent of exchange rate movements.Topic: Operating Exposure: Definition100) Suppose that you hold a piece of land in the city of London that you may want to sell in oneyear. As a U.S. resident, you are concerned with the dollar value of the land. Assume that if the British economy booms in the future, the land will be worth £2,000, and one British pound will be worth $1.80. If the British economy slows down, on the other hand, the land will be worth less, say, £1,500, but the pound will be stronger, say, $2.20/£. You feel that the British economy will experience a boom with a 60 percent probability and a slowdown with a 40 percent probability.Discuss how you can hedge your exchange risk exposure and also examine the consequences of hedging.Answer: You could sell b = £539.17 forward. However, exchange rate movements only account for a small amount of the volatility in the dollar value of the asset (3%). What we really have is aplay on the state of the British economy, not on the exchange rate.Topic: Operating Exposure: Definition
International Financial Management, 8e(Eun)Chapter 10 Management of Translation Exposure1) Under the monetary/nonmonetary method, revenue and expense items associated with nonmonetary accounts, such as cost of goods sold and depreciation, are translated at the historical rate associated with the balance sheet account.Answer: TRUETopic: Monetary/Nonmonetary MethodAccessibility: Keyboard Navigation2) Translation exposure refers toA) accounting exposure.B) the effect that an unanticipated change in exchange rates will have on the consolidated financial reports of an MNC.C) the change in the value of a foreign subsidiaries assets and liabilities denominated in a foreigncurrency, as a result of exchange rate change fluctuations, when viewed from the perspective of the parent firm.D) all of the optionsAnswer: DTopic: Translation MethodsAccessibility: Keyboard Navigation

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