Reference no: EM133013868

Question - 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 £2,546 and one British pound will be worth $1.44. If the British economy slows down, on the other hand, the land will be worth less, i.e., £1,502, but the pound will be stronger, i.e., $1.6/£. You feel that the British economy will experience a boom with a 60% probability and a slow-down with a 40% probability. Estimate your exposure b to the exchange risk.