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 variance of the exchange rate 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 variance of the exchange rate is:

Quizplus · Accepted Answer

To find the variance of the exchange rate, we need to multiply the variance of the shekel-dollar exchange rate by the square of the shekel price of the asset held by the U.S. firm. The variance of the shekel-dollar exchange rate is given as 0.027^2 = 0.000729. Therefore, the variance of the exchange rate is:

0.000729 * (11ea736f_4389_ce2d_8d35_9dcf68979335_TB2454_00_TB2454_00_TB2454_00_TB2454_00)^2 = 0.002969

Thus, the best choice is B.

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