International Financial Management 2nd Edition by Geert Bekaert ,Robert Hodrick

Exercise 31

Over the next 30 days, economists forecast that the pound may weaken relative to the dollar by as much as 7%, or it may strengthen by as much as 6%. The possible rates of change are -7%, -5%, -3%, -1%, 0%, 2%, 4%, and 6%. If these values are equally likely, what are the mean and standard deviation of the future spot exchange rate if the current rate is $1.5845 £