A U.S.firm holds an asset in Italy and faces the following scenario: $\begin{array}{llccc}&\text { State 1}&\text { State 2}&\text { State 3}\\\text { Probability } &30 \% & 400 \% & {30 \%} \\\text { Spot rate } & \$ 2.50 /£ & \$ 1.50 / £ & \$0.90\\P^{*} & € 1350.00 & € 2.250.00 & € 3750.00\end{array}$ Where
P^* = Euro price of the asset held by the U.S.firm
The CFO decides to hedge his exposure by selling forward the expected value of the euro denominated cash flow at F₁($/£) = $1.50/€.As a result,

Question

A U.S.firm holds an asset in Italy and faces the following scenario:

\begin{array}{llccc}&\text { State 1}&\text { State 2}&\text { State 3}\\\text { Probability } &30 \% & 400 \% & {30 \%} \\\text { Spot rate } & \$ 2.50 /£ & \$ 1.50 / £ & \$0.90\\P^{*} & € 1350.00 & € 2.250.00 & € 3750.00\end{array}

Where
P^* = Euro price of the asset held by the U.S.firm
The CFO decides to hedge his exposure by selling forward the expected value of the euro denominated cash flow at F₁($/£) = $1.50/€.As a result,

Quizplus · Accepted Answer

The Answer of A U.S.firm holds an asset in Italy and faces the following scenario: $\begin{array}{llccc} &\text { State 1}&\text { State 2}&\text { State 3}\ \text { Probability } &30 \% & 400 \% & {30 \%} \ \text { Spot rate } & \$ 2.50 /£ & \$ 1.50 / £ & \$0.90\ P^{*} & € 1350.00 & € 2.250.00 & € 3750.00 \end{array}$ Where P^* = Euro price of the asset held by the U.S.firm The CFO decides to hedge his exposure by selling forward the expected value of the euro denominated cash flow at F₁($/£)= $1.50/€.As a result,

A USFirm Holds an Asset in Italy and Faces the Following