If there were a 50% chance that by this time next week a currency will have depreciated by 20%, then selling the currency now will give an expected return of approximately 10% for the week.

Question

Quizplus · Accepted Answer

If there's a 50% chance of the currency depreciating by 20%, the expected change in value is 0.5 * (-20%) = -10%. Selling now avoids that potential loss, effectively making the expected return +10% relative to holding the currency and experiencing the depreciation.

If There Were a 50% Chance That by This Time