A Canadian firm holds an asset in France and faces the following scenario:
$\begin{array} { l l l l }
\hline & \text { State 1 } & \text { State 2 } & \text { State 3 } \
\hline \text { Probability } & 20 \% & 50 \% & 30 \% \
\text { Spot rate } & \$ 1.6 / \text { euro } & \$ 1.65 / \text { euro } & \$ 1.70 / \text { euro } \
\begin{array} { l }
\text { Price of the euro- } \
\text { asset }
\end{array} & \text { euro } 2,000 & \text { euro } 3,000 & \text { euro 4,000 }
\end{array}$
-The "exposure" (i.e.the regression coefficient beta)is:

Question

A Canadian firm holds an asset in France and faces the following scenario:
$\begin{array} { l l l l } 
\hline & \text { State 1 } & \text { State 2 } & \text { State 3 } \
\hline \text { Probability } & 20 \% & 50 \% & 30 \% \
\text { Spot rate } & \$ 1.6 / \text { euro } & \$ 1.65 / \text { euro } & \$ 1.70 / \text { euro } \
\begin{array} { l } 
\text { Price of the euro- } \
\text { asset }
\end{array} & \text { euro } 2,000 & \text { euro } 3,000 & \text { euro 4,000 }
\end{array}$
-The "exposure" (i.e.the regression coefficient beta)is:

Quizplus · Accepted Answer

The exposure or regression coefficient (beta) in this context is calculated by considering the covariance between the asset's returns and the exchange rate changes, divided by the variance of the exchange rate changes. The information provided does not allow for a direct calculation of beta without additional computations involving the asset's returns in CAD and the exchange rate fluctuations. Therefore, without performing these calculations or having more specific data, we cannot determine the exact beta value from the choices given.

A Canadian Firm Holds an Asset in France and Faces