How to hedge its asset exposure in the forward market

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Reference no: EM131332795

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 P^IS P^$ 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: P^IS is the Israeli shekel (IS) price of the land. Calculate the U.S firm’s asset exposure. How to hedge its asset exposure in the forward market? Can forward hedging eliminate the U.S firm’s asset exposure? Explain. How much of the dollar value variability is attributable to exchange rate uncertainty? Now assume the Israeli shekel (IS) price of the land is IS, 3000 in any state of economy. Can forward hedging eliminate the firm’s asset exposure? Explain.

Reference no: EM131332795

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