A US MNC tries to sell off its assets in France and retain US dollars back....

A US MNC tries to sell off its assets in France and retain US dollars back. Now the company is facing three scenarios, and the euro value of its French assets and the exchange rate under each scenario is indicated in the table below.

(a) Please answer the dollar value of the company’s French assets under each case.

State	Probability	Euro Value	Exchange Rate	Dollar Value
Scenario 1	1/3	€900	$1.35/€
Scenario 2	1/3	€1,000	$1.50/€
Scenario 3	1/3	€1,100	$1.65/€

(a. Implication of beta in Financial Hedging

We sell €_________ forward at the 1-year forward rate of ________

a. $ net cash flow when the French assets is worth €980, and the exchange rate is $1.35/€

b. $ net cash flow when the French assets is worth €1,000, and the exchange rate is $1.50/€

c. $ net cash flow when the French assets is worth €1,070, and the exchange rate is $1.65/€

Expert Solution

A. Dollar value table

dollar value is derived by multiplying euro amount *dollar exchange rate

	A	B	C	D=B*C	A*D
Scenario	Probability	Euro value	Exchange rate	Dollar value	Probabilistic value
1	0.333333	900	$1.35	1,215	405
2	0.333333	1000	$1.50	1,500	500
3	0.333333	1100	$1.65	1,815	605
				Total	1,510

a. $ net cash flow when the French assets is worth €980, and the exchange rate is $1.35/€ will be 980*1.35=1323 $b)

b. $ net cash flow when the French assets is worth €1,000, and the exchange rate is $1.50/€ will be 1000*1.5=1500$

c. $ net cash flow when the French assets is worth €1,070, and the exchange rate is $1.65/€=1070*1.65$=1766$

ekkarill92 answered 1 year ago

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