How to measure Economic exposure The exposure coefficient. b, is defined as follows b CovP, S) Var(s) Where Cov(P s) is the covariance between the dollar value of the asset and the exchange rate, and var(s) is the variance of the exchange rate McGraw-Hilylrwoin 12-5 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 12-5 How to Measure Economic Exposure The exposure coefficient, b, is defined as follows: Var( ) Cov( , ) S P S b = Where Cov(P,S) is the covariance between the dollar value of the asset and the exchange rate, and Var(S) is the variance of the exchange rate
How to measure Economic exposure The exposure coefficient shows that there are two sources of economic exposure: thethe variance of the exchange rate and the covariance between the dollar value of the asset and exchange rate COVP,S) Var(s) McGraw-Hilylrwoin 12-6 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 12-6 How to Measure Economic Exposure The exposure coefficient shows that there are two sources of economic exposure: the the variance of the exchange rate and the covariance between the dollar value of the asset and exchange rate. Var( ) Cov( , ) S P S b =