Suppose that you hold a piece of land in the city of London that you may want to sell in one year.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.
Estimate your exposure (b)to the exchange risk.

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The Answer of Suppose that you hold a piece of land in the city of London that you may want to sell in one year.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.
Estimate your exposure (b)to the exchange risk.

Suppose That You Hold a Piece of Land in the City