A U.S. firm holds an asset in Great Britain and faces the following scenario: where,
P * = Pound sterling price of the asset held by the U.S. firm
P = Dollar price of the same asset
-The variance of the exchange rate is:

Question

A U.S. firm holds an asset in Great Britain and faces the following scenario:  where,
P * = Pound sterling price of the asset held by the U.S. firm
P = Dollar price of the same asset
-The variance of the exchange rate is:

Quizplus · Accepted Answer

The variance of the exchange rate is 0.0200. This is because the variance is the average of the squared differences between each data point and the mean. In this case, the mean is 1.0000 and the squared differences are 0.0004, 0.0004, 0.0004, and 0.0004. The average of these squared differences is 0.0004, which is equal to the variance.

A US Firm Holds an Asset in Great Britain and Faces