Topic: Foreign Investment essay

Description

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 $1.40.

If the British economy slows down, on the other hand, the land will be worth less, say £1,500, but the pound will be stronger, say $1.50/£.

You feel that the British economy will experience a boom with a 60 percent probability and a slowdown with a 40 percent probability.
Answer the three questions below 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.

This paper should have a relevant introduction outlining what topics will be discussed. Concluded with a strong conclusion that takes a stance supporting your critical thinking.

Do not simply rewrite the introduction in the conclusion. Cite a minimum of 6 scholarly sources no older than 5 years old (2015 and current) to support your positions, claims, and observations (Please use 1 of the provided sources. Each paragraph should be 4-6 sentences long and supported by a minimum of 1-2 in-text citations in each paragraph.

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