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A US MNC tries to sell off its assets in France and retain US dollars back.
_________
(b) Please solve for the economic exposure of the company's French assets. In other words, how does the change of exchange rate affect the dollar value of the assets. To answer this question; build a model:
Dollar value of French Assets = alpha + beta* Exchange Rate (then solve for beta)
Hint: use the statistics function of your calculator. Choose linear regression for calculation.
(c) 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/€
