Find an Effective Hedge Financial Hedge If a U

Find an effective hedge financial hedge if a U.S. firm holds an asset in Great Britain and faces the following scenario: P* = Pound sterling price of the asset held by the U.S. firm P = Dollar price of the same asset
The CFO runs a regression of the form The regression coefficient beta is calculated as Where The variance of the exchange rate is calculated as:
E(S) = 0.25 × $2.20 + 0.50 × $2.00 + 0.25 × $1.80 = $.55 + $1 + $.45 = $2.00
VAR(S) = 0.25($2.20 - $2.00) ² + 0.50($2.00 - $2.00) ² + 0.25($1.80 - $2.00) ² = 0.01 + 0 + 0.01
= 0) 02
The expected value of the investment in U.S. dollars is:
E[P] = 0.25 × $6,600 + 0.50 × $5,000 + 0.25 × $3,600 = $5,050
Which of the following is the most effective hedge financial hedge?

A) Sell £7,500 forward at the 1-year forward rate, F₁($/£) , that prevails at time zero.
B) Buy £7,500 forward at the 1-year forward rate, F₁($/£) , that prevails at time zero.
C) Sell £2,500 forward at the 1-year forward rate, F₁($/£) , that prevails at time zero.
D) 0.25 × £3,000 + 0.50 × £2,500 + 0.25 × £2,000 = £2,500