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Questions 37-40 are based on the following information: (15 points in total) A U.S. firm holds an asset in UK and considers selling it in one year. The firm faces the following scenario of the future spot rates in one year:   State 1 State 2 State 3 State 4 State 5 Probability 20% 20% 20% 20% 20% Spot rate ($/£) 1.6 1.5 1.4 1.3 1.2 P*(£) 1200 1400 1600 1800 2000 P ($) $1920 $2100 $2240 $2340 $2400 In the above table, P* is the pound price (local price) of the asset in UK held by the U.S. firm and P is the dollar price of the asset. The variance of the dollar price of this asset if the U.S. firm remains unhedged against this exposure is [l1] .  

 In Aspen Skiing Company case, the strong dollar in 80s had a _______ effect on the competitive position of Aspen Skiing Company.

GE Transportation just sold locomotives to a Chinese importer. The payment of $80 million is due in six months, then

Questions 23-36 are based on the following information: Transaction Exposure Problem: (34 points in total) Suppose that you (i.e., company XYZ) are a US-based importer of goods from Canada. You expect the value of the Canada dollar to increase against the US dollar over the next 6 months. You will be making payment on a shipment of imported goods (CAD100,000) in 6 months and want to hedge your currency exposure. The US risk-free rate is 5% and the Canada risk-free rate is 4% per year. The current spot rate is $1.25/CAD, and the 6-month forward rate is $1.3/CAD. You can also buy a 6-month option on Canadian dollars at the strike price of $1.4 /CAD for a premium of $0.10/CAD. If XYZ wants to hedge the transaction exposure using option hedge, XYZ should ______________.

 An international trader faced with exposure to a depreciating foreign currency can reduce transaction exposure with a strategy of 

Boeing just signed a contract to sell 100 airplanes to China Airlines over the next 20 years, and the payment of CNY 100 million is due December 31 of each year. Boeing can best hedge the foreign currency risk by using which product?

Which of the following foreign exchange exposure will a local Erie firm (transactions in USD) most likely face? 

 XYZ Corporation, located in the United States, has an accounts payable obligation of ¥750 million payable in one year to a bank in Tokyo. Which of the following is NOT part of a money market hedge? 

The $14.3 trillion total market value of investible commercial real estate can be broken into four quadrants. Which of the following sectors of the commercial real estate market currently accounts for the largest proportion of market value?

Scratch Paper Beginning   Before you move on to the next question please note: SCRAP PAPER – IMPORTANT – You may use one piece of scrap paper, maximum size 8.5 x 11 (copy paper, lined notebook paper, or similar) YOU MUST show the camera both sides of your blank scrap paper at the beginning of your exam before you start. Show both sides of your used scrap paper at the end of the exam before you submit. At this time make sure you are in compliance with this policy and show both sides of your one piece of scratch paper to the camera slowly. Falure to comply, incuding showing the camera both sides of your scratch paper will cause a serious negative impact on your exam grade. When you complete this, confirm you have done this by typing the space below: I understand the scratch paper policy and have shown both sides to the camera