Foreign Investment

Paper instructions:
Foreign Investment (50 points)

Problem 1

Answer the three questions below (found also below the problem in the document) with respect to selling property in the

city of London:
Estimate your exposure to the exchange risk.
Compute the variance of the dollar value of your property that is attributable to exchange rate uncertainty.
Discuss how you can hedge your exchange risk exposure and examine the [possible] consequences of hedging.
Your answer should be 2-3 pages in length, well-written, and formatted per CSU-Global specifications for APA Style.

Support your analysis by referencing and citing at least two credible sources, in addition to the textbook, that you used to

OUR COURSE BOOK IS Eun, C.,&Resnick, B. (2012).International financial management(6thed.).&nbsp; New York, NY: McGraw-Hill
ISBN-13: 9780078034657

Module 4
Problem 1
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 \$1.50/£. If the British economy slows down, on the other hand, the land

will be worth less, say, £1,500, but the pound will be weaker, say, \$1.40/£. You feel that the British economy will

experience a boom with a 60 percent probability and a slowdown with a 40 percent probability.
a. Estimate your exposure to the exchange risk.
b. Compute the variance of the dollar value of your property that is attributable to exchange rate uncertainty.
c. Discuss how you can hedge your exchange risk exposure and examine the [possible] consequences of hedging.

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