S.firm holds an asset in Italy and faces the following scenario: $\begin{array} { l c c c } & \text { State 1 } & \text { State 2 } & \text { State 3 } \\\text { Probability } & 30 \% & 40 \% & 30 \% \\\hline \text { Spot rate } & \$ 2.50 & \$ 1.50 & \$ 0.90 \\P ^ { * } & € 1,350.00 & € 2,250.00 & € 3,750.00\end{array}$ 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($/ $\le$ ) = $1.50/€.As a result

Question

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

\begin{array} { l c c c } & \text { State 1 } & \text { State 2 } & \text { State 3 } \\\text { Probability } & 30 \% & 40 \% & 30 \% \\\hline \text { Spot rate } & \$ 2.50 & \$ 1.50 & \$ 0.90 \\P ^ { * } & € 1,350.00 & € 2,250.00 & € 3,750.00\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($/

\le

) = $1.50/€.As a result

Quizplus · Accepted Answer

The Answer of S.firm holds an asset in Italy and faces the following scenario: $$\begin{array} { l c c c } & \text { State 1 } & \text { State 2 } & \text { State 3 } \ \text { Probability } & 30 \% & 40 \% & 30 \% \ \hline \text { Spot rate } & \$ 2.50 & \$ 1.50 & \$ 0.90 \ P ^ { * } & € 1,350.00 & € 2,250.00 & € 3,750.00 \end{array}$$ 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($/$\le$)= $1.50/€.As a result

SFirm Holds an Asset in Italy and Faces the Following