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16 suppose that you hold a piece of land in the City of London that...

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Finance

16 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, we are concerned with the dollar value of the land. Assume that, if the British economy booms in the future, the land will be worth 5,500 and one British pound will be worth $1.65. If the British economy slows down, on the other hand, the land will be worth less, i.e.,4,300, and the pound will be weaker, i.e., $1.55. You feel that the British economy will experience a boom with a 55% probability and a slow-down with a 45% probability. Given the above facts, please estimate your exposure b to the exchange risk.
-24,100
-15,500
15,500
24,100
image

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