Calculate the us firm asset exposure

Reference no: EM131016810

A U.S firm owns a piece of land in Israel. The price (in unit of million) of the land is expected to be:

State of Economy	Probability	Exchange Rate	PIS	PIS
State 1	25%	$0.30/IS	IS 2,000	$600
State 2	50%	$0.20/IS	IS 5,000	$1,000
State 3	25%	$0.15/IS	IS 3,000	$450

Note: PIS is the Israeli shekel (IS) price of the land.

Questions:

(1) Calculate the U.S firm's asset exposure.

(2) How to hedge its asset exposure in the forward market?

(3) Can forward hedging completely eliminate the firm's asset exposure? Explain.

(4) How much of the dollar value variability is attributable to exchange rate uncertainty?

(5) Assume the Israeli shekel (IS) price of the land stays at IS, 3000, Can forward hedging completely eliminate the firmAc€?cs asset exposure in this case? Explain.

Reference no: EM131016810

Questions Cloud

Determine the minimum allowable diameter of the conduit : A hydroelectric turbine passes 2 million gal/min through its blades. If the average velocity of the flow in the circular cross-section conduit leading to the turbine is not to exceed 30 ft/s, determine the minimum allowable diameter of the conduit..

A wide variety of external parties : Although accounting information is used by a wide variety of external parties, financial reporting is primarily directed toward the information needs of:

Determine the force f required to pull the shaft : The lubricant that fills the 0.3-mm gap between the shaft and bearing is an oil having a kinematic viscosity of 8.0 ×10-4 m2/s and a specific gravity of 0.91. Determine the force F required to pull the shaft at a velocity of 3 m/s. Assume the velo..

Security and exchange commission : Security and Exchange Commission, is the U.S government agency that determines the financial statements that public companies must provide to stockholders, and the rules that they must use in producing those statements.

Calculate the us firm asset exposure : (1) Calculate the U.S firm's asset exposure. (2) How to hedge its asset exposure in the forward market? (3) Can forward hedging completely eliminate the firm's asset exposure? Explain.

Determine the agnitude and direction of the shearing stress : A layer of water flows down an inclined fixed surface with the velocity profile shown in Fig. Determine the agnitude and direction of the shearing stress that the water exerts on the fixed surface for U = 3 m/s and h =0.1 m.

The time-weighted compounded : You purchase a stock for $100 that pays an annual dividend of $5.50. At the beginning of the second year, you purchase an additional share for $130. At the end of the second year, you sell both shares for $140. Determine the dollar-weighted return an..

The 2011 income statements of leggett & platt : The 2011 income statements of Leggett & Platt, Inc. reports net sales of $3,636.0 million. The balance sheet reports accounts receivable, gross of $527.9 million at December 31, 2011 and $501.0 million at December 31, 2010. The average collection per..

Investor expected rate of return : What is the investor's expected RATE of return from such an investment? Show and explain all relevant calculations.

User Account

All Pages