A U.S. firm holds an asset in Israel and faces the following scenario: where,
P * = Israeli shekel (IS) price of the asset held by the U.S. firm
P = Dollar price of the same asset
-The expected value of the investment in U.S. dollars is:

Question

A U.S. firm holds an asset in Israel and faces the following scenario:  where,
P * = Israeli shekel (IS) price of the asset held by the U.S. firm
P = Dollar price of the same asset
-The expected value of the investment in U.S. dollars is:

Quizplus · Accepted Answer

Using the given scenario, PS1U1P1*S1S1P0 = 11ea736f_4389_ce2d_8d35_9dcf68979335_TB2454_00_TB2454_00_TB2454_00_TB2454_00, we can solve for P to find the US dollar price of the asset. 
P = (PS1U1P1*S1S1P0)/S1U1P0 = (11ea736f_4389_ce2d_8d35_9dcf68979335_TB2454_00_TB2454_00_TB2454_00_TB2454_00)/6.25 = 1.8. 
Therefore, the investment in US dollars is P = $1.8 million. 
To calculate the expected value of the investment in US dollars, we need to multiply the expected value in Israeli shekel by the exchange rate. 
Expected value in Israeli shekel = 2.5 million IS. 
Expected value of the investment in US dollars = 2.5 million IS * 0.72 USD/IS = $1.8 million. 
Therefore, the best choice is B) $762.50.

A US Firm Holds an Asset in Israel and Faces the the Following